PRODUCTION  ENGINEERING 

AND 

COST  KEEPING 


PUBLISHERS     OF     BOOKS 

Coal  Age     *•     Electric  Railway  Journal 

Electrical  World  ^  Engineering  News-Record 

American  Machinist  ^  Ingenieria  Internacional 

Engineering 8 Mining  Journal     ^     Power 

Chemical  6   Metallurgical  Engineering 

Electrical  Merchandising 


PRODUCTION  ENGINEERING 

AND 

COST  KEEPING 

FOR  MACHINE  SHOPS 


BY 
WILLIAM  R.  BASSET 

AND 

JOHNSON  HEYWOOD 

of 
MILLER,  FRANKLIN,  BASSET  &  Co. 


FIRST  EDITION 


McGRAW-HILL  BOOK  COMPANY,  INC. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON:  6  &  8  BOUVERIE  ST.,  E.  C.  4 
1922 


£ 


COPYRIGHT,  1922,  BY  THE 
McGRAw-HiLL  BOOK  Co.,  INC. 


THE  MAPLE  PRESS  YORK  PA 


', 


THIS  BOOK 

BUILT  LARGELY  UPON  OUR  EXPERIENCE  IN  THE 

MACHINE  TOOL  INDUSTRY 

IS    HEREBY   DEDICATED 
TO   THE 

NATIONAL  MACHINE  TOOL  BUILDERS'  ASSOCIATION 

BY 

MILLER,  FRANKLIN,  BASSET  &  COMPANY,  INC., 

IN  APPRECIATION  OF  THE  SUPPORT  ACCORDED  BY  THE 

ASSOCIATION'S  MEMBERS  DURING  THE  TWELVE  YEARS' 
CONTACT  IN  WHICH  THIS  COMPANY  HAS  ACTED  AS  THE  ASSOCI- 
ATION'S INDUSTRIAL  ENGINEERS  AND  COST  ACCOUNTANTS. 


NEW  YORK  CITY, 
July,  1922. 


489451 


PREFACE 

Our  purpose  in  this  book  has  been  not  only  to  bring  practical 
assistance  to  the  production  managers,  foremen  and  cost  account- 
ants of  machine  shops,  but  to  give  the  higher  executives  a 
knowledge  of  the  best  in  shop  management  practice,  so  that 
they  may  judge  how  effective  are  the  methods  used  by  their 
subordinates.  The  principles  and  practice  here  recommended 
have  been  developed  in  the  course  of  years  of  actual  installation 
of  improved  production,  engineering  and  cost  keeping  systems  in 
metal  trades  plants.  They  have  thus  been  well  tested  and 
proved. 

Of  course  no  system,  however  successful  in  one  shop,  can 
be  taken  over  into  another  shop  in  its  entirety.  There  must  be 
intelligent  adaptation.  But  the  underlying  principles  are  widely 
valid  and  the  specific  procedure  here  set  forth  should  prove  sug- 
gestive of  better  policies  and  methods.  They  should  give  more 
production  and  cheaper  production. 

Our  aim  has  been  to  tell  why  and  how  at  every  step  and  to 
state  the  case  in  language  as  non-technical  as  possible.  For  this 
reason  the  book  should  prove  a  valuable  manual  of  instruction 
and  inspiration  to  under-executives  all. down  the  line. 

In  the  first  part  of  the  book,  production  planning  methods 
are  described  as  concretely  as  possible.  The  proposals  of  this 
portion  of  the  text  should  apply  with  slight  modification  in  the 
majority  of  shops. 

This  is  also  true  of  the  part  of  the  book  dealing  with 
cost  keeping  methods.  Those  here  described  should  fit  fully 
ninety  per  cent  of  American  machine  shops;  the  very  large 
shop  will  want  more  detail,  perhaps;  the  very  small  shop  may 
get  along  with  less.  But  it  should  be  possible  for  an  executive  of 
judgment  with  a  little  thought  to  fit  all  the  suggestions  to  his 
needs. 

We  are  indebted  to  the  following  members  of  our  organization 
for  help  in  preparing  this  book:  B.  M.  Maynard,  Geoffrey  Steven- 
son, F.  A.  Smith,  W.  S.  Powers  and  T.  D.  Nevins. 

NEW  YORK,  N.  Y.,  THE  AUTHORS. 

May,  1922. 


CONTENTS 

PAOE 

PREFACE  v 

CHAPTER 

I.  WHAT  PRODUCTION  PLANNING  DOES 1 

II.  PURCHASING,  AS  A  TOOL  OF  PRODUCTION 9 

III.  NEED  FOR  SYSTEMATIC  STOCK  KEEPING  . 19 

IV.  ENGINEERING  THE  PRODUCT 36 

V.  TOOL  ISSUE 45 

VI.  LAYING  OUT  THE  MACHINES 60 

VII.  THE  CENTRAL  CONTROL  OF  PRODUCTION 70 

VIII.  CONTROLLING  THE  WORK  IN  THE  SHOP 89 

IX.  PLANNING  IN  THE  JOBBING  SHOP 102 

X.  THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY  .  .  .  ....  119 

XI.  SETTING  THE  STANDARD 132 

XII.  SETTING  PIECE  RATES 143 

XIII.  SPECIAL  CASES  OF  TIME  STUDY  AND  RATE  SETTING 156 

XIV.  TIME  STUDY  ON  AUTOMATIC  MACHINES 164 

XV.  WHAT  A  COST  SYSTEM  CAN  Do  FOR  You 173 

XVI.  THE  FUNDAMENTALS  OF  COST 181 

XVII.  FIXED  CHARGES 193 

XVIII.  DEPARTMENTALIZING  THE  OVERHEAD  EXPENSE  .    .    ....    .    .  200 

XIX.  ANALYZING  THE  LABOR  COSTS 209 

XX.  ACCOUNTING  FOR  SUPPLIES 223 

XXI.  GETTING  THE  OVERHEAD  INTO  THE  FINISHED  PRODUCT     .    .    .  237 

XXII.  HANDLING  ABNORMAL  EXPENSE 254 

XXIII.  GATHERING  THE  FINAL  COSTS  .    .    : 266 

XXIV.  THE  STATEMENT  OF  CONDITION  AND  THE  OPERATING  STATE- 

MENT   275 

XXV.  WHAT  DOES  IT  COST  TO  SELL? .        .    '..      .288 

XXVI.  GRAPHIC  METHODS  OF  CONTROL .    .   296 

INDEX    .  .  305 


VII 


PBODUCTION  ENGINEERING 

AND 
COST  KEEPING  FOE  MACHINE  SHOPS 

CHAPTER  I 
WHAT  PRODUCTION  PLANNING  DOES 

If  your  product  happens  to  be  one  in  which  several  parts  are 
assembled,  it  is  a  safe  guess  you  have  at  times  had  production 
held  up  because  one  vital  part  had  not  reached  the  assembly 
department  on  time.  It  is  no  help  that  the  other  hundred-odd 
parts  were  there  waiting.  If  a  small  and  seemingly  trivial  part 
was  late  at  the  assembly  floor,  it  may  have  kept  you  from  shipping 
the  entire  machine. 

You  know  what  that  meant — customers  disappointed  in 
deliveries,  an  assembly  room  clogged  with  waiting  material,  idle 
assemblers  and  a  lot  of  money  tied  up  in  materials  that  should  be 
shipped. 

The  Unplanned  Shop. — Sometimes,  of  course,  this  condition 
cannot  be  helped,  for  accidents  will  happen  to  machines  and 
men  will  quit  unexpectedly.  Nearly  all  trouble  of  this  sort 
comes  not  from  these  causes,  but  from  failure  to  schedule  opera- 
tions so  that  enough  of  all  parts  will  arrive  at  the  assembly 
department  each  day  to  get  out  that  day's  quota  of  assembled 
product. 

Unless  every  step  of  production  is  planned,  it  is  not  surprising 
that  shipments  of  finished  product  are  irregular  and  that  it  is 
impossible  to  prophesy  them  accurately. 

Where  production  is  not  planned,  the  method  of  getting  work 
through  the  shop  may  be  described  as  "muscling"  it  through. 
The  " muscling7'  is  done  either  by  foremen  or  tracers. 

Under  this  plan  of  running  the  shop,  the  foreman  is  given  a 
copy  of  the  sales  order  or  perhaps  a  bill  of  material,  and  from 
his  knowledge  of  the  article,  will  pick  out  those  parts  which  his 
department  usually  makes,  and  make  them.  He  is  in  no  position 

1 


2  PROtiUVW'QN-:EtfG>{$&EtiING  AND  COST  KEEPING 

to  judge  when  to  start  the  work  to  best  advantage  for  he  has  no 
knowledge  as  to  how  long  it  will  take  to  make  the  other  parts 
that  go  into  the  assembly. 

The  Wrong  Way. — If  the  material  he  needs  is  on  hand,  he 
grabs  it  and  starts  as  soon  as  he  has  a  man  and  machine  idle. 
If  he  can't  find  material,  he  requisitions  what  he  thinks  he  needs 
from  the  purchasing  agent  and  with  a  copy  of  the  requisition  in 
his  possession  to  "  clear  his  skirts/'  waits  without  further  effort 
for  the  purchasing  agent  to  get  the  material  to  him. 

A  few  energetic  foremen  go  at  production  rough-and-tumble. 
They  remind  us  of  the  "typical"  American  army  officer  of  whom 
we  once  read,  whose  presumably  effective  tactics  in  France 
enabled  him  to  put  through  tremendous  engineering  projects  in 
unheard  of  short  time. 

This  officer's  success  in  driving  his  work  through  to  a  finish 
ahead  of  schedule  seemed  generally  to  be  due  to  his  knack  of 
"beating  the  other  fellows  to  it"  in  obtaining  labor  and  materials. 

Perhaps  he  would  divert  a  string  of  empty  cars  to  his  own  use 
which  should  have  gone  elsewhere,  or  again  he  would  use  material 
that  some  other  branch  of  the  work  needed  urgently  and  depended 
upon.  We  wonder  about  the  success  of  the  others  who  were 
left  without  their  transportation  facilities  and  supplies. 

Such  violent  methods,  usually  referred  to  admiringly  as 
"getting  things  done"  are  not  always  praiseworthy.  An  army 
or  a  factory  achieves  the  desired  results  only  when  it  acts  with  all 
parts  subservient  to  the  whole.  It  does  no  good  for  one  depart- 
ment to  show  phenomenal  results — a  "clean  slate" — if  it  does  so 
at  the  expense  of  other  departments. 

Reducing  Emergencies. — That  which  counts  in  manufacturing 
is  not  a  rapid  production  of  a  single  part  of  a  product,  but  the 
amount  of  completely  finished  goods  shipped  out  at  the  back 
door.  It  is  this  that  production  planning  aims  to  accomplish 
in  a  shop. 

Many  a  machine  shop  executive  has  said  "Production  plan- 
ning is  fine  for  those  who  can  use  it,  but  my  business  is  different. 
It  can't  be  planned." 

Admittedly,  the  work  of  all  shops  cannot  be  rigidly  planned 
weeks  in  advance.  Some  emergencies  come  up  in  every  plant. 
The  usual  objection  is  that  accidents  to  machinery,  failure  to  get 
raw  materials  and  other  circumstances  beyond  control  may 
render  all  this  work  abortive.  Of  course,  no  one  is  a  prophet,  but 


WHAT  PRODUCTION  PLANNING  DOES  3 

a  wise  man  plans  ahead  on  the  information  that  is  available  and 
then  changes  his  plans  according  to  circumstances.  But  it  is  a 
fact  that  at  least  80  per  cent  of  the  things  we  plan  for,  work  out. 
That  leaves  only  20  per  cent  to  handle  on  the  emergency  basis, 
whereas  if  we  do  not  plan,  the  whole  100  per  cent  becomes  an 
emergency  proposition. 

We  truly  believe  that  80  per  cent  of  the  emergency  production 
in  any  shop  can,  by  planning,  be  reduced  to  routine.  But  the 
method  of  planning  and  the  degree  to  which  production  should 
be  planned  depends  upon  the  type  of  work  done  by  the  shop. 

Three  Classes  of  Machine  Shops. — Machine  shops  fall  into 
one  of  three  classes  depending  upon  the  sales  policy  which  governs 
production. 

First,  there  are  the  job  shops  which  will  make  almost  anything 
that  the  sales  force  can  sell.  The  order  may  be  for  a  single 
machine  unlike  any  turned  out  before  and  it  may  be  for  a  dozen 
or  more  of  a  kind. 

Second,  there  is  the  shop  that  manufactures  many  types  of 
product  of  a  class,  but  always  in  quantity.  It  may  make  several 
thousand  gears,  transmissions,  differentials,  and  so  on  to  the 
customer's  special  design.  Or  it  may  make  several  standard 
styles  of  adding  machines  of  its  own  unvarying  design,  to  stock. 

The  third  class  of  shop  is  the  one  which  makes  but  a  single 
style  of  one  product.  There  are  few  such,  the  Ford  Motor  Co. 
being  one  of  the  few. 

The  planning  for  this  latest  type  is  largely  preliminary.  It 
consists  of  getting  the  best  possible  layout  of  machines  and  of 
departments,  and  supplying  the  proper  tools  and  machines  in 
sufficient  quantity  to  give  a  certain  production  per  day.  The 
single  product  then  flows  in  a  perpetual  stream,  day  in  and  day 
out. 

In  such  a  shop,  a  machine  tool  once  started  on  an  operation 
can  remain  on  it  indefinitely,  barring  a  breakdown.  Production 
planning  as  we  think  of  it  is  not  needed  in  such  a  plant,  and  the 
shop  executives  can  give  all  of  their  time  to  keeping  the  wheels 
going  round. 

A  Seemingly  Impossible  Case. — In  the  jobbing  shop,  it  is 
admittedly  hard  at  first  to  plan  accurately,  and  yet  it  is  in  the 
jobbing  shop  that  planning  is  most  needed  for  there  the  work  is 
very  irregular  and  losses  from  idle  machine  time  are  most  apt  to 
climb.  In  such  shops,  especially,  it  is  customary  to  look  upon 


4          PRODUCTION  ENGINEERING  AND  COST  KEEPING 

every  new  order  as  an  emergency.  Unfortunately,  the  idea 
seems  to  be  that  the  owner  of  a  job  shop  must  throw  up  his 
hands  in  despair  of  bettering  conditions.  This  is  probably 
because  the  economies  to  be  had  from  planning  were  first  seen 
by  the  owners  of  the  larger  shops  in  the  automotive  industry 
where  quantity  production  of  a  comparatively  few  types  of  prod- 
uct was  the  rule. 

But  work  in  the  job  shop  can  be  planned.  It  has  even  been 
accomplished  in  the  repair  shops  of  industries  where  a  repair  is 
an  emergency  job  indeed,  as  interrupted  production  of  a  large 
machine  may  cost  thousands  of  dollars  in  a  few  hours.  In  one 
repair  shop  for  which  the  production  is  planned  the  repairs  are 
now  made  in  about  one  half  the  time  they  formerly  took.  This 
not  only  reduces  the  direct  cost  of  repairs  but  means  an  economy 
through  increasing  the  running  hours  of  equipment  in  the 
productive  departments. 

We  shall  not  describe  in  detail  the  planning  work  in  the  strictly 
job  shop,  for  the  very  sufficient  reason  that  no  two  such  shops  are 
at  all  alike,  either  in  the  work  handled  or  the  equipment  avail- 
able ;  but  we  shall  give  in  outline  the  steps  in  planning  the  work. 

Planning  the  Job  Shop. — As  a  basis  for  planning  in  a  job  shop 
it  is  necessary  to  know  just  what  machines  there  are  in  the  shop 
and  what  operations  each  can  perform.  Then  we  must  gather 
data  which  will  serve  as  a  basis  on  which  we  can  estimate  the 
time  needed  to  perform  any  conceivable  operation.  This,  to 
many  a  shop  man,  seems  impossible.  It  is  the  reason  always 
put  forward  to  prove  that  the  work  cannot  be  planned.  If  the 
shop  has  been  in  operation  for  a  year  or  so,  there  should  be  a  mass 
of  information  on  hand  to  show,  for  jobs  already  done,  what  the 
job  was,  what  machine  each  operation  was  done  on  and  how  long 
each  operation  took.  A  study  of  these  operations  will  show  that 
they  can  be  grouped  into  a  surprisingly  few  classifications  and  so 
tabulated  that  they  will  afford  a  basis  for  a  quick  and  sufficiently 
close  estimate  of  the  time  needed  for  any  new  job  that  comes  in. 

This  list  of  jobs  and  operations  should  show  the  tooling,  fixtures 
available,  speeds  and  feeds.  Then  for  practically  every  job  we 
will  not  only  be  able  to  estimate  the  time  needed  for  each  opera- 
tion, but  we  can  give  the  workman  full  instructions  for  the  work 
so  that  he  can  spend  his  time  in  doing  the  job,  rather  than  fiddling 
around  "getting  ready  to  start  to  begin." 

Eliminating  Guesswork. — One  thing  more  is  needed — a  means 


WHAT  PRODUCTION  PLANNING  DOES  5 

for  showing  the  executive  what  work  is  ahead  of  each  machine, 
how  long  the  machines  will  be  busy  on  work  already  in  the  shop, 
when  each  operation  should  be  finished  in  order  to  meet  the 
customer's  requirements,  what  machines  are  now  idle  and  when 
the  others  will  run  out  of  work. 

This  information  allows  the  shop  to  give  accurate  promises  of 
delivery  based  upon  knowledge  of  the  shop's  capacity,  rather 
than  on  optimistic  guesses  warped  by  the  salesman's  desire  to 
land  an  order. 

This  information  can  all  be  given  graphically  on  the  "  schedule 
control  graph"  which  we  shall  describe  in  detail  in  a  later  chapter. 
Of  course  changes  in  that  graph  will  have  to  be  made  to  meet  the 
needs  of  the  individual  shop,  but  the  changes  needed  will  be 
apparent  to  the  reader. 

Bird's -eye  View  of  Planning. — The  real  complications  in  plan- 
ning come  in  the  shop  of  the  second  type,  which  either  manu- 
factures in  quantity  to  the  customer's  order,  or  has  a  number  of 
standard  lines  of  its  own  which  can  be  made  to  stock.  This  is 
the  group  under  which  the  great  majority  of  machine  shops  fall 
and  this  production  can  be  accurately  planned. 

We  shall  show  in  detail  in  subsequent  chapters  how  the  planning 
of  production  is  done  in  shops  of  this  kind.  Each  chapter  takes 
up  a  single  detail  of  the  planning  and  describes  it  thoroughly, 
but  first  we  want  to  give  a  bird's-eye  view  of  the  method  as  a  whole. 

Where  the  output  is  made  in  quantity  it  is  possible  by  means 
of  time  study  to  tell  accurately  just  how  long  any  operation  will 
take.  This,  together  with  the  known  dates  when  delivery  must 
be  made,  gives  the  basis  on  which  to  work. 

When  the  sales  department  gets  an  order,  it  is  sent  to  the 
engineering  department,  which  makes  up  a  list  of  the  parts 
going  into  that  assembly.  If  new  tools,  jigs  or  fixtures  are 
needed,  they  are  provided  in  advance.  The  road  is  smoothed  so 
that  the  shop's  productive  departments  need  bother  about 
nothing  but  production.  Naturally  some  of  the  component 
parts  of  an  assembly  take  longer  to  make  than  others  and  there- 
fore must  be  started  sooner.  Taking  the  delivery  date  as  a 
starting  point  the  planning  department  works  back  and  finds 
the  date  on  which  each  part  must  be  started  to  meet  the  delivery 
date.  This  depends  upon  the  time  needed  to  make  the  part  and 
the  machine  capacity  available.  Now  it  is  necessary  to  make  sure 
that  all  raw  material  will  be  in  the  plant  when  needed,  so  the 


6  PRODUCTION  ENGINEERING  AND  COST  KEEPING 

planning  department  notifies  the  purchasing  agent  of  the  shop's 
requirements  as  to  quantity  and  delivery,  and  follows  him  up  to 
see  that  he  does  as  he  should.  From  the  time  the  raw  materials 
come  in  until  the  finished  product  leaves  the  plant,  it  is  under  the 
control  of  the  planning  department — this  does  away  with  "buck 
passing." 

Providing  for  Breakdowns. — The  plan  so  far  outlined  may  seem 
so  rigid  that  if  anything  went  wrong  the  whole  production  would 
be  snarled  up.  Later  it  will  become  apparent  how  the  necessary 
flexibility  is  attained.  Suffice  it  to  say  now,  that  between  each 
two  lots  of  parts  scheduled  to  a  machine,  several  hours  are  allowed 
as  a  cushion  to  take  up  shocks  due  to  machine  breakdowns  or 
other  delays  in  production.  Then,  too,  reservoirs  of  finished  and 
semi-finished  parts  are  generally  provided  which  will  enable 
assembling  to  continue  for  a  day  or  so  even  should  a  severe 
check  come  in  production. 

The  work  is  actually  given  out  in  the  shop  by  "booth  men," 
there  being  a  production  booth  for  every  department  or  two. 
They  are  close  to  the  men  and  machines  and  have  authority  to 
assign  the  work  to  any  one  of  several  machines  of  a  kind,  depend- 
ing on  conditions.  The  central  planning  department  thus  plans 
only  to  operations;  the  booth  to  the  individual  machines.  The 
booth' man  also  attends  to  moving  the  material  between  machines 
and  departments,  checks  the  time  of  the  men  and  so  on. 

Two  Divisions  of  Planning. — It  is  now  apparent  that  planning 
consists  of  two  parts. 

First,  the  way  is  made  clear  beforehand  so  that  the  parts  can 
be  processed  without  a  hitch.  Sufficient  machine  capacity  is 
provided  to  handle  each  operation.  The  machines  are  physically 
arranged  so  that  the  parts  can  be  moved  from  operation  to 
operation  with  the  least  possible  trucking.  That  means  that 
the  machines,  so  far  as  possible,  are  arranged  according  to  the 
sequence  of  operations.  The  whole  shop  is  put  in  balance.  This 
planning  is  preliminary;  it  is  done  before  an  order  is  taken. 

Second,  each  job  is  planned  through  the  shop,  and  the  road 
cleared  for  it  so  that  the  machine  operators  have  nothing  to  do 
but  perform  productive  operations  on  the  parts.  Tools  that  are 
to  be  used  are  supplied,  raw  materials  needed  are  purchased  and 
both  are  delivered  to  each  operator  just  before  he  is  ready  to  use 
them.  Usually  he  does  not  even  have  to  set  up  his  own  tools. 
The  time  of  starting  each  job  is  worked  out  so  that  every  part 


WHAT  PRODUCTION  PLANNING  DOES  7 

which  goes  into  an  assembly  will  be  finished  in  time  to  get  to  the 
assembly  floor  at  the  right  minute. 

Planning  has  a  much  deeper  significance  to  a  business  than 
merely  to  assure  smooth  production.  The  real  purpose  of 
planning  is  to  conserve  capital  so  that  the  rate  of  turnover  will 
be  decreased;  that  is,  so  that  the  time  which  elapses  between  the 
purchase  of  the  raw  material  and  the  shipment  of  the  finished 
product  will  be  a  minimum.  Obviously,  when  this  time  is 
reduced,  a  given  volume  of  sales  can  be  handled  with  a  less 
investment  in  goods  in  process. 

Most  manufacturers  believe  that  what  they  need  most  of  all 
is  more  capital  in  their  business,  and  to  prove  it,  point  to  the 
business  failures,  which  are  usually  blamed  on  lack  of  capital. 
It  is  seldom  that  a  manufacturer  can  talk  about  his  business  for 
an  hour  or  so  without  laying  emphasis  on  what  he  could  do  if  he 
only  had  more  money. 

Yet  we  believe  that  most  of  these  men  not  only  do  not  need 
more  money  but  would  be  worse  off  if  they  had  it.  The  strange 
thing  is  that  when  considering  the  getting  of  more  money,  they 
almost  invariably  think  of  Wall  Street  and  the  banks,  rather  than 
realizing  that  very  likely  they  would  be  able  to  pick  it  out  of  their 
own  business. 

Capital  turnover  is  a  subject  which  is  given  too  little  study  by 
the  average  manufacturer.  This  is  not  the  place  to  elaborate 
on  all  of  the  ramifications  of  the  subjects,  but  the  fact  remains 
that  if  the  time  taken  in  manufacturing  a  given  article  can  be 
cut  in  half,  the  value  of  the  goods  in  process  inventory  will  like- 
wise be  cut  in  half  and  the  money  released  from  the  unnecessary 
goods  in  process,  will  be  additional  working  capital  which  may 
be  used  in  expanding  the  business.  Innumerable  instances  of 
plants  can  be  cited  where  this  has  been  done. 

Doubling  Output  through  Planning. — In  one  machine  shop  in 
particular,  where  production  planning  was  installed,  the  results 
were  most  striking.  At  first  glance,  this  concern  seemed  to  be 
well  managed.  The  machines  were  well  laid  out;  there  was  a 
time-study  department  of  eight  men,  and  nearly  every  operation 
in  the  plant  was  on  piece  work.  Nevertheless  the  planning 
system  reduced  the  goods  in  process  from  $3,000,000  to  $1,000,000 
in  spite  of  an  actual  increase  in  sales.  That  means  that  $2,000,- 
000  in  cash  was  picked  out  of  the  goods  in  process  inventory  and 
was  available  for  other  purposes. 


8          PRODUCTION  ENGINEERING  AND  COST  KEEPING 

In  another  concern,  making  automobile  parts,  the  goods  in 
process  inventory  amounted  to  $800,000  with  annual  sales  of  the 
finished  product  valued  at  $3,600,000.  This  meant  that  the 
money  invested  in  goods  in  process  was  turned  over  once  in  80 
days  or  4^  times  a  year.  A  production  planning  system  in  this 
plant  resulted  in  cutting  the  goods  in  process  inventory  to 
$450,000,  giving  one  turnover  in  45  days.  This,  obviously,  is  a 
cut  of  nearly  one  half.  This  concern  thought  that  it  was  going 
to  have  to  borrow  money  to  build  a  new  plant  in  order  to  meet  its 
expected  increased  sales.  Instead,  the  planning  system  enabled 
it  nearly  to  double  its  output  without  additional  buildings. 

To  the  casual  observer,  who  might  have  seen  the  plant  before 
and  after  the  installation  of  the  production  system,  it  was  evident 
that  great  changes  had  occurred,  although  at  first  glance  it  might 
have  seemed  that  business  had  seriously  fallen  off.  Where 
previously  the  floors  of  the  shop  had  been  cluttered  up  with 
partly  processed  parts,  today  the  shop  is  clean.  There  are  no 
accumulations  of  partly  finished  pieces  at  machines  waiting  for 
the  next  operation  and  no  piles  of  finished  parts  on  the  assembly 
floor  awaiting  other  parts  which  have  not  been  started. 

What  Planning  Will  Do. — To  sum  up,  a  planning  system 
accomplishes  the  following  results: 

1.  It  enables  the  sales  department  to  make  promises  which  are 
reasonably  certain  of  being  fulfilled. 

2.  It  reduces  the  capital  needed  to  handle  a  given  amount  of  sales. 

3.  It  tends  to  prevent  delays  in  production.     By  foreseeing 
future    requirements,    it    does    away    to    a   large   degree   with 
emergencies. 

4.  It  relieves  the  productive  departments  of  the  plant  from 
doing  non-productive  work. 

5.  It  enables  the  plant  to  get  out  the  maximum  possible 
production. 

6.  It  tends  to  keep  all  machines  busy,  thus  doing  away  with 
the  loss  which  an  idle  machine  entails. 

7.  It  reduces  the  unit  cost  of  the  output. 

These  results  are  ardently  desired  by  every  manufacturer,  but 
are  seldom  attained.  We  know  of  no  other  way  to  achieve  them 
except  through  the  medium  of  a  carefully  worked  out  planning 
system,  but  we  do  know  that  there  is  not  a  shop  now  operating 
under  the  hit-or-miss  condition  which  cannot  avail  itself  of  plan- 
ning to  a  large  degree,  with  the  desirable  results  just  mentioned. 


CHAPTER  II 

PURCHASING,  AS  A  TOOL  OF  PRODUCTION 

The  motto  "well  bought  is  half  sold,"  is  an  excellent  one  for 
the  merchant,  for  price  is  important  in  trade.  It  is  also  a  safe 
guide  for  the  machine  shop  provided  price  is  not  made  the  sole 
test  of  good  buying. 

An  eastern  machine  shop  hired  as  a  purchasing  agent,  an  ex- 
salesman  who  for  15  years  or  more  had  been  selling  to  machine 
shops.  Because  he  had  been  on  the  other  side  of  the  counter  he 
knew  the  "tricks  of  the  trade."  It  was  assumed  that  since  he 
would  be  able  to  play  upon  the  fears  and  weaknesses  of  salesmen, 
he  would  make  an  unusually  good  purchasing  agent.  As  a 
buyer  he  succeeded  in  playing  one  salesman  against  the  other  and 
his  orders  were  unquestionably  placed  at  the  lowest  prices  on 
record.  He  assured  his  employers  that  the  quality  of  his  pur- 
chases was  satisfactory.  But  the  shop  felt  differently  about  it. 
Castings  were  of  uneven  hardness — and  sometimes  full  of  holes; 
belts  needed  constant  attention  and  although  the  prices  paid 
for  them  were  low,  a  lot  more  were  bought  yearly  than  before. 
Tools  were  often  unsatisfactory  and  the  maintenance  cost  of 
machinery  and  equipment  was  nearly  double. 

Increased  overhead  expense,  higher  labor  cost,  returned  goods 
and  decreased  life  of  supplies  made  this  "shrewd"  buyer  an 
expensive  luxury.  It  should  not  be  necessary  to  point  out  that, 
in  the  machine  shop  industry,  the  price  of  raw  materials  and 
supplies  is  really  the  least  important  factor  of  good  buying,  for 
material  is  usually  the  smallest  item  of  cost.  It  is  more  impor- 
tant that  materials  be  the  best  for  the  purpose  and  that  they  be 
received  on  time  than  that  they  be  bought  at  the  rock  bottom 
price. 

All  of  these  factors,  however,  must  be  kept  in  balance. 

The  Purchasing  Agent. — One  of  the  best  purchasing  agents  in 
the  machine  shop  industry  does  the  poorest  buying  we  have  ever 
seen.  This  man  knows  personally  every  source  of  supply,  he 
is  a  shrewd  bargainer,  a  good  judge  of  quality  and  a  marvel  at 
getting  deliveries  through  in  record  time. 

9 


10        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

He  has  few  equals  in  getting  in  materials  of  which  the  shop  is 
short,  the  lack  of  which  is  holding  up  production  and  causing 
serious  loss  of  profits.  So  good  is  he  at  this  that  he  habitually 
postpones  buying  until  a  shortage  report  jars  into  action  his  really 
phenomenal  abilities.  He  is  what  we  call  the  "grand  opera 
star7'  type.  He  won't  tolerate  routine;  he  won't  use  his  talents 
for  the  maximum  good  of  his  organization.  His  buying  is  to  him 
an  art;  an  exercise  for  his  talents,  rather  than  a  tool  with  which 
his  employer  can  make  profits.  There  are  many  like  him. 

At  the  other  extreme  is  the  purchasing  agent  who  is  merely 
an  order-signing  clerk.  Where  he  exists,  the  shop  superintend- 
ent, or  perhaps  an  individual  foreman,  specifies  what  to  buy,  of 
what  quality  it  shall  be,  how  much  to  buy  and  when  it  shall 
be  delivered.  He  has  little  to  do  but  specify  the  purveyor,  and 
sometimes  even  that  authority  is  taken  from  him.  Where  this 
method  is  used  the  purchasing  agent  has  no  chance  to  buy  well, 
for  shop  men  are  inclined  to  wait  until  they  run  up  against  a 
need,  and  then  to  need  it  badly.  Requisitions  are  for  small 
quantities  " wanted  at  once"  and  he  has  no  alternative  but  to 
place  a  rush  order.  The  time  given  him  and  the  individual 
orders  placed  are  insufficient  to  enable  him  to  buy  to  advantage. 

Effective  Purchasing  Policies. — It  would  seem  obvious  that 
production,  the  sole  end  of  a  machine  shop,  suffers  under  either 
of  these  ways  of  handling  the  buying.  Without  raw  materials 
the  shop  cannot  work,  and  if  quality  is  not  what  it  should  be 
final  costs  will  be  high.  It  is  not  necessary  to  elaborate  on  these 
facts.  But  a  definite  statement  of  even  the  obvious  sometimes 
is  needed.  Therefore,  to  make  the  purchasing  department  an 
effective  tool  of  production,  the  following  points  must  be 
considered : 

1.  Raw  material  must  get  to  the  shop  before  it  is  needed. 

2.  The  amounts  purchased  must  be  in  accordance  with  known  future 
requirements  of  the  shop,  neither  more  nor  less  than  needed. 

3.  The  purchasing  agent  must  have  sufficient  time  to  enable  him  to  buy 
well,  except  in  occasional  emergencies. 

4.  The  materials  must  be  the  cheapest  in  the  long  run. 

5.  In  order  to  achieve  the  first  four  points,  the  purchasing  agent  must 
have  definite  records  of  the  past  performance  of  all  supplies,  as  to  quality, 
price  and  delivery. 

6.  Fraud  and  clerical  errors  must  be  avoided  by  internal  checks. 

How  Buying  Affects  Production. — The  last-minute  purchasing 
agent  mentioned  habitually  violated  the  first  of  these  rules. 


PURCHASING,  AS  A  TOOL  OF  PRODUCTION  11 

Time  and  again  we  have  seen  as  many  as  90  machines  on  the 
assembly  floor,  complete  except  for  a  small  part  which  had  been 
overlooked.  These  assemblies  are  worth — when  shipped — about 
$800  apiece.  That  means  that  it  is  not  unusual  for  $72,000  to 
be  tied  up  for  weeks  at  a  time,  because  the  purchasing  agent 
delayed  placing  a  small  order  for  raw  material.  Obviously,  the 
loss  involves  more  than  the  mere  tying  up  of  working  capital. 
Valuable  productive  floor  space  is  being  used  as  unproductive 
storage  and  congestion  is  caused  at  many  points  in  the  plant. 

That  is  the  effect  of  under-ordering  or  late  ordering.  Over- 
ordering  is  also  an  expensive  practice. 

What  An  Investigation  Showed. — A  manufacturer  of  automo- 
biles decided  to  find  out  why  he  required  what  seemed  to  be  a 
huge  amount  of  working  capital  to  handle  only  a  moderate 
volume  of  output.  An  investigation  of  his  storeroom  showed 
him. 

Take  one  item  alone — axle  housings,  which  cost  him  an  average 
of  $35  apiece.  He  used  from  80  to  120  a  month  and  had,  as  a 
rule,  little  difficulty  in  getting  prompt  deliveries.  His  stock  of 
these  parts  averaged  100  more  than  was  needed  to  care  for  any 
likely  emergency.  The  same  condition  existed  throughout  the 
stockroom.  By  regulating  the  purchases,  he  released  nearly 
$175,000  of  idle  money. 

This  condition  is  bad  enough,  but  it  might  be — and  in  many 
shops  is — worse.  The  material  overstocked  might  be  obsolete. 
We  have  seen  obsolete  stock  §old  at  less  than  25  per  cent  of 
cost — a  loss  in  one  instance  amounting  to  well  over  a  quarter  of  a 
million  dollars — all  because  of  unregulated  buying.  Conditions 
of  this  sort  exist  as  a  rule  where  the  size  of  orders  is  left  to  the 
judgment  of  the  purchasing  agent.  It  is  emphatically  out  of  his 
province  to  determine  how  much  to  buy,  when  to  buy  it  and 
when  it  should  be  delivered.  Those  questions  can  best  be 
settled  only  by  someone  closely  in  contact  with  the  shop  and  the 
sales  department.  An  exception  occurs  in  a  rising  market  when 
it  may  seem  to  be  good  business  to  buy  more  than  usual.  This, 
however,  should  be  done  only  after  careful  consideration  of  the 
future  needs  of  the  shop,  the  financial  condition  of  the  company, 
the  facilities  for  storing  unusual  quantities  of  material  and  so  on. 
It  cannot  well  be  decided  by  the  purchasing  agent  alone. 

The  best  practice  is  for  the  planning  department  to  investigate 
purchases.  Even  though  no  formal  planning  department  may 


12        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

exist,  there  is  someone  who  has  knowledge  of  the  needs  of  the 
plant  and  can  exercise  this  function.  How  the  planning  depart- 
ment arrives  at  the  quantity  of  material  to  be  purchased  will  be 
described  in  a  later  chapter.  In  this  chapter  our  only  task  is  to 
show  what  is  needed  to  make  the  purchasing  department  an 
effective  tool  of  production. 

Don't  Over  systematize. — Routine  is  necessary  and  records 
must  be  kept,  but  neither  should  be  elevated  to  an  end,  of  itself. 
Sometimes  production  is  facilitated  by  smashing  routine  for  an 
emergency  order.  Records  should  be  as  simple  as  possible  and 
only  needed  ones  kept.  We  have  seen  the  entire  time  of  a  clerk 
used  to  keep  up  records  which  might  have  a  value  to  some  learned 
society  but  which  were  never  utilized.  Good  sense  must  govern. 

Often  a  report  will  be  inaugurated  for  a  temporary  need,  which 
will  continue  to  be  compiled  long  after  the  need  has  passed.  It  is 
well  to  check  up  on  all  records  periodically  and  if  they  do  not 
serve  a  purpose — throw  them  out. 

The  forms  described  here  are  simple  and  all  are  designated  to 
aid  the  buyer  to  live  up  to  the  six  requirements  of  good  buying. 

How  Orders  are  Handled. — Let  us  consider  the  way  an  order 
is  handled  after  the  requisition  is  received  by  the  purchasing 
agent. 

The  forms  and  routine  for  various  shops  need  not  differ  appre- 
ciably, no  matter  what  the  size  of  the  shop  nor  what  its  product. 
The  methods  we  are  going  to  describe  are  now  in  use  in  shops 
employing  25  men,  and  also  in  shops  having  more  than  2,000  on 
the  payroll.  Some  of  these  shops  do  a  jobbing  business,  building 
any  kind  of  machines;  one,  on  the  other  hand,  builds  gears,  trans- 
missions, differentials,  etc. — thousands  of  a  type. 

When  a  requisition  comes  in,  the  purchasing  agent  turns  to  the 
form  shown  in  Fig.  1,  on  one  side  of  which  is  the  quotation  record 
and  on  the  other  a  record  of  purchases  already  made.  There  is  a 
copy  of  this  form  for  each  item. 

For  convenience,  each  supply  house  is  given  a  number,  which  is 
used  rather  than  the  name.  The  information  on  this  card  is  a 
valuable  guide  in  showing  which  concerns  have  given  the  best 
prices,  and  the  promptest  deliveries  in  the  past. 

The  Performance  Record. — In  buying  many  productive 
materials  and  especially  supplies  and  tools  a  performance  record 
is  a  valuable  guide.  Such  a  one  is  shown  in  Fig.  2.  It  consists 
of  a  manilla  envelope — one  for  each  article — in  which  can  be 


PURCHASING,  AS  A  TOOL  OF  PRODUCTION 


13 


kept  memoranda  and  comments  made  by  the  shop  and  others 
on  the  article.  This  is  an  invaluable  guide  to  the  purchasing 
agent  who  keeps  in  mind  that  his  duties  require  more  than  to 
buy  cheaply.  The  persistent  use  of  this  performance  record 


QUOTATIONS 


APTICU 


MAXIMUM.. 

MINIMUM 
DESIRABLE  ORDER. 


DATE    FNRJM    FIRM  QUOTING   QUANTITY       Ptll<X'      DISCOUNT    FREIGHT    ^| 


DATE    FNQM  QUANTITY 


PURCHASES 


PRICE 


REMARKS 


DATE    FNQM   QUANTITY    PRICE 


REMARKS 


FIG.   1. — Buyer's  quotation  record. 

saved  one  concern  $5,000  a  year  on  its  belting  alone,  and  $25,000 
a  year  on  one  of  its  principal  raw  materials. 

Determining  the  "Best  Buy." — This  is  how  it  came  about: 
Belting  had  been  costing  this  machine  shop  $17,000  a  year.  It 
seemed  too  much  and  the  purchasing  agent  decided  to  experiment 
with  various  makes  and  keep  a  record. 

In  the  envelope  for  belting  he  kept  data  as  to  every  drive.  He 
noted  the  location,  the  operating  conditions,  the  power  trans- 
mitted and  other  data  having  a  bearing.  When  a  belt  was 
purchased,  he  recorded  the  description  of  the  belt,  the  maker, 


14        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

price,  the  drive  on  which  it  was  used;  even  the  cost  of  the  belt 
per  unit  of  production  on  that  machine. 

With  this  data  in  hand,  he  had  a  guide  more  reliable  than  the 
usual  foreman's  guess,  which  is  all  that  many  purchasing  agents 
have  to  go  by.  He  bought  on  a  basis  of  exact  knowledge. 

Formerly  $17,000  worth  of  belting  was  bought  annually. 
After  this  record  was  in  operation  he  spent  only  $12,000  in  spite 
of  a  35  per  cent  increase  in  the  plant's  production  and  a  50  per  cent 
increase  in  the  average  price  of  belting.  This  saving  is  all  due 
to  the  fact  that  only  the  best  belt  for  each  drive  is  purchased. 


PERFORMANCE  RECORD 
DETAILS  INSIDE 

ArfVl*                                                                                                                                                  A*M.  *3~ 

Date 

Item 

Maker 

Price 

Remarks 

1 

FIG.  2. — Performance  record  envelope. 


In  addition  to  the  direct  saving  of  money  spent  for  belts,  there 
is  an  operating  economy  due  to  reduced  shutdowns  caused  by 
belt  troubles.  It  is  expensive  to  pay  with  idle  machines  for  cheap 
belting.  The  same  method  is  used  in  judging  the  other  supplies 
and  raw  materials  used. 

Good  judgment,  knowledge  of  markets  and  of  men  still  plays 
its  part  in  this  man's  buying,  but  instead  of  dickering  and  jockey- 
ing for  price  advantage,  he  has  definite  knowledge  on  which  to 
base  his  shopping. 

When  he  has  settled  upon  the  source  of  supply,  he  places  his 
order  by  means  of  a  standard  order  form.  At  least  three  copies 
are  needed,  one  for  the  purveyor,  one  for  the  purchasing  agent, 
and  one  for  the  receiving  clerk.  Sometimes  more  copies  will  be 


PURCHASING,  AS  A  TOOL  OF  PRODUCTION 


15 


needed,   such,   for  instance,   as  one  for  the  originator  of  the 
requisition. 

Purchase  Orders. — The  form  in  Fig.  3  shows  a  desirable  design 
for  the  purchase  order.     If  the  nature  of  the  business  demands 


that  frequently  a  large  number  of  items  be  ordered  at  one  time 
from  a  supplier,  it  is  well  to  have  order  forms  large  enough. 
When  only  one  or  two  items  are  ordered  at  a  time,  paper  may  be 
saved  by  having  the  purchase  order  correspondingly  small. 

On  the  left  of  the  original  copy  is  a  perforated  slip  which  the 
supplier  is  requested  to  return  with  a  promise  of  delivery.     This 


16        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

may  be  attached  upon  its  return  to  the  purchasing  department's 
copy  of  the  order. 


12148878810  1112  13  1418  18  17  18  19  20  21  22  23  24  2S  28  27  28  29  30  31  JFM  AM  JJAS  ON  0 

No.  (serial 

) 

1ft 

Please  shi 

pthe  fnllftwfng  tn 

and  charge  to  our  account 

Quantity 

Description 

PrirA 

Shipping 
Date 

Please  observe  the  following  instruction 

s  in  packing,  shipp 
billing 

Very  Truly  1 

ty 

ng  and 
fours 

Route  Via                   Terms 

Confirming 

(  Verbal 
{  Telegram      Order  of 

(Telephone 

FIG.  4. — Follow-up  order  form. 

If  most  of  the  orders  placed  take  a  considerable  time  to  fill, 
and  a  large  amount  of  correspondence  is  usually  necessary,  it  is 
handy  to  have  the  purchasing  department's  copy  printed  on  the 


PURCHASING,  AS  A  TOOL  OF  PRODUCTION      17 

outside  of  a  manila  folder  so  that  the  order  and  all  correspondence 
bearing  on  it  can  easily  be  kept  together.  As  a  rule  though, 
only  a  few  of  the  total  orders  placed  require  much  follow  up. 
Therefore,  it  is  possible  to  have  the  purchasing  department's 
copy  printed  on  paper,  and  when  needed,  to  paste  it  to  a  folder. 

An  excellent  plan  is  to  print  this  copy  on  cardboard  or  heavy 
manila  paper  so  that  it  will  stand  on  edge.  This  copy  is  used  as 
a  follow-up  tickler  so  that  deliveries  may  be  watched.  At  the 
top  of  the  order  shown  in  Fig.  4  are  numbers  for  the  days  of  the 
month  and  letters  representing  the  months.  The  dates  promised 
by  the  supplier  may  be  indicated  on  each  order  by  tabs  affixed 
to  these  letters  and  numbers. 

The  purchasing  department  is  responsible  not  only  for  placing 
the  order,  but  for  getting  the  material  into  the  plant.  Hence 
the  need  for  thorough  and  regular  follow  up.  It  should  start 
when  the  order  is  placed.  Each  day  the  one  responsible  for 
following  up  should  go  through  the  file  in  which  the  orders  are 
arranged  alphabetically  by  materials,  and  pick  out,  by  means  of 
the  tabs,  those  orders  indicated  for  attention  on  that  day. 

The  Receiving  Clerk's  Copy. — One  copy  of  the  order  goes  to 
the  receiving  clerk.  A  valuable  check  will  be  supplied  if  the 
left-hand  column  of  the  order  showing  quantities  be  left  off. 
This  may  be  done  by  cutting  the  carbon  paper  so  that  the  quan- 
tity figures  on  the  original  won't  copy.  This  necessitates  an 
actual  count  of  the  incoming  material.  Too  often,  a  receiver, 
if  at  all  hurried — and  he  usually  is  hurried  at  times — looks  over 
a  carload  of  material,  " guesses"  it  is  all  there  and  turns  in  a 
complete  receipt.  This  permits  of  dishonesty,  and — what  may 
be  even  more  costly — may  hold  up  production  seriously  because 
of  lack  of  material  supposedly  received. 

Sometimes  it  is  also  well  to  leave  off  the  price  from  all  but  the 
original  and  the  purchasing  department's  copy. 

While  for  most  concerns  three  copies  of  the  order  are  enough, 
it  is  sometimes  desirable  to  have  more.  For  instance,  it  may 
seem  well  to  send  a  copy  to  the  cost  department,  so  that  it  may 
enter  the  material  costs  on  its  records.  In  very  large  concerns,  a 
copy  is  sometimes  sent  to  the  controller's  office  so  that,  knowing 
what  payments  are  going  to  be  called  for  in  the  future,  sufficient 
funds  may  be  provided  when  needed.  If  this  is  not  done,  the 
purchasing  department  should  report  monthly  the  payments  to 
be  made  for  materials  for  the  following  month. 


18        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

A  simplified  form  of  purchase  order  which  may  be  used  espe- 
cially in  the  smaller  plant  is  shown  in  Fig.  3. 

When  the  goods  arrive,  the  receiving  clerk  sends  a  material 
receipt,  Fig.  5,  to  the  purchasing  department  where  the  receipt  is 
recorded  on  the  office  copy  of  the  order.  When  the  invoice  for 


MATERIAL  RECEIVED  REPORT 

PRO.  NO. 

VIA 

WT. 

FREIGHT 

BOXES 

BAGS 

BARS 

BUNDL'S 

KEGS 

PIECES 

P-KSES 

BARRELS 

GRATIS 

EXPRESS 

From  Whom  Received 

ORDER  No. 

QUANTITY 

OESCR 

PTION 

OR  PART 

NUMB 

ER 

WGT 

^SSS&JSSk* 

SHIPMENT  CHECKED  BY 

DATE  OF  INVO 

FIG.  5. — Material  received  report. 

the  material  comes  in,  it  is  checked  for  quantity  and  price  and 
sent  to  the  accounting  department  for  payment. 

Importance  of  Records. — As  can  be  seen,  the  forms  and  records 
of  a  properly  run  purchasing  department  are  simple  and  each 
designed  for  a  definite  purpose.  Proper  records  should  be  a 
guide  to  future  buying  rather  than  a  tally  of  what  has  been 
bought. 

The  purchasing  agent  must  remember  that  it  is  not  his  occa- 
sional ''breaking  of  the  market"  or  getting  a  delivery  in  a  pinch 
which  makes  for  profit.  The  purchasing  department's  function 
is  rather  to  keep  up  a  steady  flow  of  the  materials  best  suited  to 
the  need  of  the  business.  They  must  be  on  hand  when  and  in 
the  quantity  needed. 

Purchases  do  not  stand  alone,  but  rather  influence  every  part 
of  the  business.  Probably  no  other  function  of  a  manufacturing 
concern  has  a  greater  effect  on  the  profits  of  the  business  as  a 
whole. 


CHAPTER  III 
NEED  FOR  SYSTEMATIC  STOCK  KEEPING 

If  the  bookkeeping  and  stock  keeping  methods  used  in  most 
plants  are  compared  it  appears  that  money  is  of  great  value 
until  it  has  been  transformed  into  material,  whereupon  what 
happens  to  it  becomes  of  no  moment.  Executives  must  OK 
expenditures  and  sign  checks,  and,  apparently,  the  greatest  of 
red  tape  is  warranted  if  they  make  sure  that  no  penny  goes  out 
of  the  business  without  a  good  reason,  and  that  a  proper  charge 
for  it  is  made  against  something  or  other. 

But  when  the  money  comes  back  into  the  stock  room  as 
material  the  owners  seem  to  lose  all  respect  for  it.  The  receiving 
clerk  will  " guess"  that  it  is  all  there.  Many  manufacturers  do 
not  even  lock  it  up;  just  let  any  workman  who  " needs"  it  help 
himself.  Or  if  they  do  demand  that  the  workmen  have  authority 
for  using  it,  they  are  seldom  "  persnickety  "  about  what  it  is  to  be 
used  for.  If,  at  the  end  of  a  month  or  so,  an  actual  count  shows 
that  there  is  only  95  per  cent  of  the  material  on  hand  which 
the  stock  records  show,  the  practice  is  to  correct  the  records  to 
agree  with  the  count  without  investigating.  Suppose  bank 
balances  were  handled  that  way? 

Why  Keep  Stock  Records? — Of  course,  accounting  for  stock 
can  be  so  surrounded  by  red  tape  that  loss  results.  Good  sense 
and  a  knowledge  of  the  needs  of  each  shop  must  dictate  how  far 
to  go.  But  it  must  not  be  forgotten  that  the  stock  room  is  a 
tool  of  both  production  and  cost  finding  and  can  be  made  a  most 
valuable  one  to  both.  With  this  in  mind,  let  us  see  why  a  stock 
room  is  needed  in  a  machine  shop.  It  is  by  means  of  the  stock 
room  and  the  stock  keeping  records  that  the  management  is  able : 

1.  To  make  sure  that  all  material  is  used  for  the  purposes  of 
the  business. 

2.  To   prevent    production    delays   through   lack   of   needed 
material. 

3.  To  prevent  over-buying  with  the  consequent  "freezing" 
of  working  capital. 

19 


20        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

4.  To  make  sure  that  all  material  will  ultimately  be  accounted 
for  as  part  of  the  cost  of  the  finished  product. 

5.  To  facilitate  taking  the  inventory. 

6.  To  save  the  time  of  men,  who,  when  they  need  something, 
can  count  on  finding  it  in  a  certain  place,  instead  of  having  to 
roam  around  the  plant  searching  for  it. 

When  the  Obvious  Is  Overlooked. — Many  of  the  points  given 
in  this  discussion  of  stock  keeping  may  seem  too  obvious,  but 
experience  shows  that  it  is  often  the  most  obvious  things  which 
are  overlooked  in  managing  a  shop. 

An  instance  of  what  we  mean  came  to  our  attention  when  the 
owner  of  a  shop  complained  that  much  of  his  finished  stock, 
consisting  of  small  brass  parts,  just  the  right  size  for  a  coat 
pocket,  disappeared  unaccountably.  He  apparently  saw  no 
connection  between  this  shrinkage  of  finished  stock  and  the 
location  of  his  finished  stock  room.  This  stock  room  was  open 
both  to  the  factory  and  to  the  outer  world — it  was  the  exit 
through  which  the  workers  left  at  night — and  the  stock  clerk 
himself  almost  invariably  "beat  the  whistle."  When  so  obvious 
an  invitation  to  theft  is  not  obvious  to  the  man  most  concerned 
it  is  felt  that  we  cannot  go  wrong  by  at  least  mentioning  the 
"obvious." 

Physical  Storage. — The  location  and  design  of  the  stock  room 
and  the  routine  of  running  it  are  all  dictated  by  the  six  aims  set 
forth  above.  Of  course,  physical  conditions  will  sometimes  be 
such  that  the  ideal  cannot  be  realized — so  the  best  possible  com- 
promise must  be  accepted.  The  materials  carried  in  stock  by  a 
machine  shop  may  be  of  five  kinds:  (1)  raw  materials;  (2)  partly 
finished  materials;  (3)  finished  materials  awaiting  assembly;  (4) 
finished  materials  awaiting  shipment;  and  (5)  supplies  or  so- 
called  non-productive  stores.  In  some  shops  only  raw  materials 
and  supplies  will  be  kept,  the  product  going  straight  through  the 
plant  and  being  shipped  as  quickly  as  finished.  In  others  all  or 
part  of  these  stocks  will  have  to  be  carried. 

Fitting  the  Stock  Room  To  the  Needs. — Whether  all  of  these 
classes  of  stock  shall  be  kept  in  a  single  stockroom,  whether  two 
or  three  shall  be  grouped,  or  whether  each  class  shall  have  a  room 
of  its  own  depends  upon  the  size  of  the  plant,  its  arrangement 
and  the  total  amount  of  stock  kept.  In  some  plants  it  is  easy 
for  one  man  to  care  for  and  issue  all  classes  of  stock;  therefore  if 
space  is  available  all  of  the  stock  may  be  kept  in  a  single  room. 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING  21 

Of  course  bulky  material  of  comparatively  low  value  per  pound 
like  pig  iron,  heavy  plates,  castings  and  so  on  may  safely  be  kept 
in  an  open  space  like  a  yard,  close  to  where  it  will  be  used.  This 
saves  valuable  floor  space  and  heavy  trucking,  and  there  is  little 
chance  for  material  of  that  sort  to  disappear. 

If  the  stock  carried  is  so  large,  or  if  the  issues  and  receipts  are 
so  frequent,  that  the  full  time  of  several  men  is  required  it  is  often 
best  to  split  up  the  stock  rooms  so  that  each  may  be  put  in  the 
best  possible  location.  In  many  machine  shops  that  cover 
considerable  area,  this  has  been  done.  One  of  these  shops  manu- 
factures large  quantities  of  several  assemblies  to  order.  It  is  a 
quantity  production  proposition  and  many  of  the  parts  are 
common  to  several  assemblies  so  that  a  considerable  quantity  of 
finished  parts  is  carried  in  stock. 

How  One  Shop  Is  Planned. — This  shop  combines  in  one  stock 
room  its  raw  materials  (which  consist  of  small  castings,  gear 
blanks  and  bar  steel)  and  its  supplies  of  non-productive  stores. 
This  stock  room  is  located  as  nearly  as  possible  in  the  center  of 
the  plant.  The  factory  was  originally  so  designed  that  freight 
would  come  in  handy  to  this  stock  room.  By  this  arrangement 
the  trucking  of  raw  materials  and  supplies  both  to  and  from  the 
stock  room  is  at  a  minimum. 

The  finished  parts  are  kept  in  a  separate  stock  room  adjoining 
the  assembly  floor,  so  that  no  long  hauls  are  needed  when  they 
are  ordered  out. 

This  is  usually  the  ideal  way  to  locate  the  stock  rooms,  but  it 
cannot  always  be  achieved.  The  rule  is,  "  Store  everything  close 
to  the  department  which  will  use  it  so  that  trucking  and  time 
may  be  saved." 

When,  for  instance,  a  plant  is  spread  out  over  an  unusually 
large  area  the  first  operations  on  various  products  are  likely  to 
start  at  widely  separated  points.  This  may  make  it  desirable  to 
split  up  the  raw  material  and  supply  stock,  locating  them  near 
the  primary  departments. 

Location  of  Stock  Room. — In  buildings  of  several  stories  the 
location  of  stock  rooms  often  presents  difficult  problems.  Re- 
ceiving and  shipping  must  generally  be  done  from  the  ground 
floor,  while  the  process  quite  often  starts  at  the  top  of  the  building 
and  the  material  flows  downward.  Usually  under  these  condi- 
tions it  is  best  to  store  the  stock  on  the  first  floor.  It  must  be 
taken  to  the  top  sooner  or  later ;  usually  the  light  is  better  on  the 


22        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

upper  floor  and  is  more  needed  for  manufacturing  departments 
than  for  storage;  and  if  the  stock  is  heavy  it  would  often  be 
quite  expensive  to  build  strong  enough  to  allow  it  to  be  carried 
on  an  upper  floor. 

Lay-out  of  Stock  Room. — Poorly  arranged  stock  rooms  are  one 
of  the  common  causes  of  leaks  and  delays  in  production.  In  one 
plant  a  mere  physical  rearrangement  of  stock  not  only  eliminated 
most  of  the  delays  in  production,  but  by  giving  the  management 
a  correct  knowledge  of  what  they  had  in  stock  and  where  it  was, 
cut  the  amount  of  the  inventory  31  per  cent.  The  stock  room  as 
it  formerly  existed  is  shown  in  Fig.  6. 

The  cases,  barrels  and  kegs  extended  back  about  80  ft.  A 
barrel  of  brass  trimmings  can  be  seen  perched  atop  a  keg  of 


FIG.  6. — A  badly  arranged  stockroom. 

rivets.  The  particular  style  of  trimmings  contained  in  the  one 
barrel  was  almost  a  year's  supply. 

It  was  a  recent  arrival  purchased  at  the  then  high  price  of 
brass;  yet  piled  behind  the  many  cases  in  two  different  places 
were  two  more  barrels  of  the  same  trim  purchased  at  a  lower 
price. 

Their  existence  was  not  suspected  until  an  investigation 
brought  them  to  light,  for  when  an  impatient  shop  superintend- 
ent failed  readily  to  find  the  trim  he  sought,  a  further  supply 
was  ordered.  The  style  of  assembled  product  changed  before 
all  of  the  trim  was  used  and  the  excess  became  obsolete  and  was 
scrapped. 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING  23 

This  stock  was  then  rearranged  so  that  the  location  of  each 
item  and  the  amount  on  hand  could  be  known. 

Of  course  this  looks  like  an  extreme  case.  Because  of  the 
apparent  disorder  it  may  be.  But  not  infrequently  the  well- 
kept,  orderly  looking  stock  room  is  actually,  though  not  appar- 
ently, just  as  bad.  If  no  one  knows  where  the  materials  are 
that  are  so  neatly  piled,  they  might  just  about  as  well  be  piled 
helter-skelter.  Take,  for  instance,  the  wastes  that  were  elimi- 
nated in  one  well-equipped  stock  room  which  at  first  glance 
seemed  to  be  admirable. 

Eliminating  Waste. — The  finished  stock  department  of  this 
plant  employed  32  men,  exclusive  of  seven  clerks  in  the  office. 
This  force  was  divided  into  four  general  groups:  receiving  and 
storing,  inventory,  mail  order  parts  and  delivering  parts  for 
assemblies.  As  the  department  had  grown  from  a  comparatively 
small  beginning,  additional  metal  bins  and  shelves  were  provided, 
but  no  particular  attention  had  been  paid  to  providing  a  fixed 
location  for  every  part.  The  old  method  of  receiving  a  truckload 
of  parts  was  to  find  an  empty  bin,  dump  the  parts  into  it  and  then 
rely  upon  the  memory  of  "Jack"  or  "Gus"  when  the  part  was 
needed. 

No  attention  was  paid  to  grouping  like  parts  or  arranging  the 
parts  most  frequently  used  conveniently  for  discharging.  For 
example,  in  making  up  one  assembly  the  requisition  might  call 
for  nuts  of  several  different  sizes  located  in  a  number  of  sections, 
20  to  40  ft.  apart,  which  necessitated  considerable  back  tracking 
and  lost  time.  The  following  steps  were  taken  to  improve 
conditions. 

A  Wage  Incentive  for  Truckers. — Incidentally,  in  this  stock; 
room  a  considerable  saving  of  wages  was  effected  by  means  of  a 
wage  incentive  plan.  All  parts  were  classified;  the  large  parts 
went  into  a  class  by  themselves;  the  small  parts  into  10  classes 
covering  them  all.  The  class  each  part  went  into  was  determined 
by  the  size  and  time  required  in  handling  the  part.  Time  studies 
were  made  from  which  to  determine  the  number  of  pieces  of  each 
class  which  could  be  handled  in  an  hour. 

For  putting  away,  counting,  making  up  assemblies  and  so  on, 
for  a  certain  fixed  number  of  pieces  of  any  class,  the  man  or  gang 
is  given  one  unit,  the  units  of  the  entire  force  are  totalled  up  each 
day  and  divided  equally  among  the  gang  at  the  end  of  the  day 
period,  each  man  receiving  a  bonus  according  to  the  number  of 


24        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

units  earned.  By  this  method  a  man  can  be  transferred  from 
any  branch  of  the  stock  department  activities  to  another  without 
affecting  his  bonus  or  necessitating  the  services  of  an  extra  time 
clerk.  These  improvements  resulted  in  reducing  the  stock 
department  force  approximately  55  per  cent. 

Arranging  the  Parts. — This  incident  brings  out  one  point 
quite  pertinent  to  the  present  discussion;  that  of  arranging  the 
parts.  There  are  three  ways  that  parts  may  be  grouped.  The 
most  common  is  to  follow  no  particular  plan — simply  to  utilize 
the  nearest  vacant  space. 

The  first  attempt  at  order  usually  is  to  arrange  the  parts  by 
part  number,  or  by  type  of  part.  As  part  numbers  frequently 
are  assigned  in  order  as  the  part  is  designed,  this  method  has 
little  to  recommend  it  except  that  it  does  offer  a  chance  to  index 
the  stock.  In  some  shops  it  may  be  best  to  group  parts  of  a 
kind,  having,  say,  all  bolts,  or  all  valves,  in  definite  sections. 
But  for  concerns  turning  out  an  assembled  product  in  quantities, 
it  is  usually  best  to  group,  so  far  as  it  is  feasible,  those  parts  which 
go  into  similar  assemblies.  Often  the  parts  for  several  assemblies 
differing  only  as  to  a  part  or  two  can  be  grouped  in  a  single  section 
so  that  the  stockkeeper  can  pick  out  the  parts  needed  for  an 
assembly  without  chasing  all  over  the  room  and  perhaps  holding 
up  production  while  he  chases. 

If  the  assemblies  have  been  properly  engineered  it  is  easy  as  a 
rule  to  make  the  stock  room  self-indexing  by  part  numbers.  The 
parts  for  similar  assemblies  will  have  similar  numbers  so  that  if 
the  bins  and  shelves  are  laid  out  by  assembly  letter  and  part 
number  they  will  be  grouped  handily. 

If  the  seasonal  demand  makes  it  necessary  to  carry  widely 
varying  quantities  of  a  part  this  grouping  may  not  be  feasible, 
for  it  may  be  necessary  at  peak  production  to  fill  the  usual  bin 
and  use  several  other  bins — whichever  ones  happen  to  be  empty 
— to  take  the  overflow. 

This  method,  in  use  in  a  well  run  machine  shop,  handles  this 
condition  well.  The  stock — small  parts  and  large — is  kept  in 
bins  and  on  shelves,  to  the  front  of  which  are  attached  bin  cards 
showing  the  part  number,  the  name  of  the  article,  the  location  of 
the  bin,  and  the  record  of  receipts  and  withdrawals.  This  bin 
card  really  is  not  needed — a  number  to  identify  the  bin  is 
sufficient. 

The  unusual  part  of  the  system  lies  in  the  index  board  by 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING 


25 


FIG.  7. — Index  board  for  stock. 


which  the  stock  clerk  can  tell  at  a  glance  where  he  will  find  any 
needed  parts.     This  is  shown  in  Fig.  7. 

The  Stock  Board. — The  stock  board  contains  small  pockets, 
each  being  given  the  number  of  a  part  in  rotation.     Whenever  a 


26        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

supply  of  a  given  part  is  put  into  a  bin  a  small  ticket  is  made  out 
and  put  in  the  pocket  bearing  the  corresponding  part  number. 
This  ticket  shows  the  exact  location  of  the  bin  in  which  the  part 
may  be  found. 

If  several  bins  contain  the  same  material,  a  separate  tag  is 
made  for  each  bin  and  kept  in  the  single  pocket.  Thus  when  the 
stock  clerk  wishes  a  part  he  goes  to  the  board  and  under  that 
part  number  sees  at  a  glance  just  which  bins  contain  the  parts 
wanted  and  how  many  parts  are  in  each  bin.  Vacant  pockets 
of  course  show  empty  bins  which  are  available. 

You  may  note  that  a  ticket  in  the  third  row  of  pockets  from 
the  bottom,  on  the  left  of  the  board,  bears  a  dot.  This  is  in 
reality  a  red  tag,  used  to  flag  attention.  It  happened  that  the 
part  in  question  was  stored  in  several  partly  filled  bins  and  it 
was  desired  to  empty  one  of  them  as  soon  as  possible.  The  next 
order  for  that  part  will  be  taken  from  the  "flagged"  bin. 

The  Right  Stock  Room  Equipment. — Whether  to  build  the 
storage  equipment  of  wood  or  steel  and  what  the  parts  shall  be 
stored  in  are  important  questions.  While  steel  is  usually  more 
expensive  at  first  than  wood,  the  economies  in  operation  are 
continuous.  Wood  wears  out  rapidly,  is  less  adaptable  to 
expanding  needs  than  steel,  becomes  dirty  and  oil-soaked  and  is 
a  considerable  fire  risk.  Then,  too,  with  steel  the  stock  can  be 
concentrated  in  much  less  space  than  with  wood. 

Whether  materials  can  best  be  stored  on  racks,  or  shelves,  in 
bins  or  in  tote  boxes  is  often  settled  by  the  nature  of  the  material. 
Tote  boxes  are  not  used  for  storage  as  much  as  they  might  well 
be.  They  offer  great  possibilities  for  economical  storage,  pro- 
vided thought  is  given  to  their  use. 

Often  they  are  too  large  to  be  a  really  desirable  unit  and  storage 
space  is  wasted  because  a  partly  filled  box  takes  up  as  much  room 
in  the  stock  room  as  a  full  one.  In  one  plant,  where  the  stock 
room  was  in  chaos,  due  largely  to  congestion,  a  study  showed  the 
following  condition  in  one  section  alone: 

No.  OF  BOXES  ACTUALLY 

BOXES  CONDITION  NEEDED 

134    boxes  completely  filled 134 

46    boxes  one-quarter  full 12 

68    boxes  one-half  full 34 

70    boxes  three-quarters  full ,       54 

318    boxes  used 234  needed 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING  27 

Obviously  by  using  smaller  tote  boxes  and  filling  them  to 
capacity  the  same  amount  of  material  could  be  kept  in  73  per 
cent  of  the  space. 

The  boxes  in  use  were  of  wood.  Their  outside  measurements 
were  18f  by  40J  by  34J  in.;  the  inside  measurements,  l?i 
by  36  by  33J  in.  In  other  words  nearly  20  per  cent  of  the 
space  occupied  by  tote  boxes  was  taken  up  in  storing  the  lumber 
of  which  they  were  made  rather  than  the  parts  with  which  they 
were  filled. 

Therefore,  the  boxes  were  replaced  with  smaller  ones  built  of 
steel  instead  of  wood  with  the  result  that  now  on  the  same  racks 
can  be  stored  72  per  cent  more  material.  Incidental  advantages 
from  the  change  are  that  the  fire  risk  is  less,  the  smaller  tote 
boxes  are  more  easily  handled  in  the  shop,  and  the  metal  boxes 
can  be  nested  so  that  they  take  up  less  room  when  empty. 

Metal  boxes  are  not  always  the  best.  In  one  shop,  which 
makes  mostly  very  small  screw-machine  products,  collapsible 
cardboard  tote  boxes  are  used  to  advantage.  They  are  made  in 
a  variety  of  sizes  so  that  lots  of  widely  different  quantities  can 
be  stored  in  boxes  of  just  the  right  size.  When  empty  the  boxes 
are  folded  to  take  up  little  space.  Of  course  they  wear  out 
rapidly,  but  offer  a  low  first  cost  as  compared  to  steel. 

As  a  rule,  though,  it  works  out  better  for  most  shops  to  stand- 
ardize one  or  two  sizes  of  metal  tote  box,  small  enough  to  be 
handled  easily. 

Where  parts  are  made  to  stock  which  moves  rapidly,  shelves 
can  be  constructed  in  the  store  room  to  fit  the  boxes.  Parts  can 
then  be  stored  without  removal  from  the  trays  in  which  they 
have  been  carried  while  in  process  and  can  be  reissued  for  final 
assembly  in  the  same  boxes.  This  avoids  a  large  amount  of 
rehandling  and  reduces  the  work  of  taking  inventory. 

The  trays  are  relatively  inexpensive,  and  are  almost  indes- 
tructible, so  that  the  investment  is  usually  not  very  heavy. 

The  excessive  cost  of  handling  small  parts  in  boxes  of  various 
size  and  shape  is  often  not  appreciated.  In  one  plant  the  time 
consumed  by  the  operators  in  moving  pieces  from  one  box  or  bin 
to  another  amounted  to  15  or  20  per  cent  of  the  total  time 
required  for  the  productive  operations.  The  standardization  of 
the  boxes  and  the  method  of  handling  resulted  in  a  large  net 
return  on  the  investment. 

So  much  for  the  physical  side  of  the  stock  room. 


28        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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The  Stock  Records. 
The  stock  records  are 
a  part  of  all  factory 
routine,  whether  costs  or 
production,  and  they 
should  therefore  be  kept 
by  someone  capable  of 
keepingthem  accurately. 
As  a  rule  the  type  of 
man  most  suited  to 
handling  the  stock  itself 
is  not  the  best  clerk,  so 
that  in  most  shops  the 
stock  records  are  ad- 
visedly kept  in  the  office. 

Where  the  factory 
production  is  planned, 
the  planning  department 
is  the  one  most  interested 
in  the  stock  records  and 
so  should  keep  them. 
We  shall  first  describe 
the  routine  found  most 
successful  in  plants  hav- 
ing a  planning  depart- 
ment. 

In  general  the  stock 
records  to  be  used  are 
of  two  kinds,  dictated 
by  whether  the  shop 
turns  out  a  standard 
product  which  the  sales 
department  must  dis- 
pose of,  or  whether  the 
sales  department  sells  an 
order  which  the  shop 
must  make  up. 

In  the  first  instance 
the  raw  material  pur- 
chased will  be  based  on 
the  sales  department's 
estimate  of  future  sales; 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING 


29 


in  the  second,  the  materials  are  ordered  in  quantities  sufficient 
to  fill  an  order  actually  sold.  The  first  condition  allows,  as  a 
rule,  much  the  simpler  stock  forms. 

For  one  thing,  no  records  need  be  kept  in  the  stock  room  itself, 


FIG.  9 


Artfcle_JBLADE5_ 


Description. 


Marker 
Size_ 


>l(o 


Jan. 

Feb. 

Mat. 

Apr. 

May 

June 

July 

Aug. 

Sept. 

Oct. 

Nov. 

Dec. 

i*» 

iso 

100 

i 

|  ATO 

IOO 

fO 

i 

Section. 


Bin  or  Shelf. 


Ordered 


Date 


Received 


Delivered 


_  _ 
Quantity  |  bate  [  Quantity  |  Date  |  Quantity  j|  Date  |  /Article 


Description. 


Size 

Maximum. 
Minimum. 


Section. 


. Bin  ,or  Shelf. 


Ordered 


Date    Quantity 


Received 


Date 


Quantity 


Delivered 


Date    Quantity     Date    Quantity    Date    Quantity 


Balance 


Date    Quantity 


FIG.  10 

FIG.  9.- — Stock  record  with  provision  of  varying 

minima. 
FIG.   10. — Another  form  of  stock  record. 

except  some  device  whereby  the  store 
keeper  may  tell  quickly  the  exact 
physical  location  of  all  materials.  The 
perpetual  inventory  sheet  or  card  will 
be  kept  in  the  planning  department, 
for  it  is  safe  to  assume  that  a  concern 
of  this  sort  which  is  so  well  adapted  to 
production  planning  will  not  try  to  do 
without  such  planning. 
Cards  are  much  used,  but  loose  sheets  kept  in  a  stock  book, 
are  to  be  preferred,  for  cards  are  easily  put  into  pockets  or  stuck 
up  behind  telephones  where  they  remain.  Figure  8  shows  a 
good  stock  sheet,  while  for  the  card  "fan"  Fig.  10  is  good.  If 
the  demand  is  sufficiently  seasonal  to  make  it  desirable  to  have 


30        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

the  maximum  and  minimum  quantities  change  from  month  to 
month,  this  can  be  provided  for  as  shown  in  Fig.  9. 

How  Much  Stock  to  Carry. — The  " minimum"  method  of 
controlling  the  supply  of  material  is  fairly  well  understood  and 
applied  throughout  manufacture,  but  frequently  the  minimum 
is  based  upon  an  " educated  guess"  and  not  in  accordance  with 
conditions  actually  governing  manufacture. 

A  " minimum,"  theoretically,  is  a  quantity  which  should  bear 
a  definite  relation  to  the  sales  or  probable  production,  and  it  is 
therefore  necessary  to  determine  the  demand  for  finished  product 
and  to  reduce  that  demand  to  its  equivalent  in  terms  of  material. 
Take  as  an  illustration  a  manufacturer  producing  a  line  of  assem- 
bled articles  composed  of  about  fifty  parts,  each  carried  on  a 
minimum  basis. 

How  to  Determine  the  Minimum. — To  determine  the  minimum 
we  would  proceed  somewhat  as  follows: 

A  "part"  card  is  used  and  this  card  shows  every  finished  article 
on  which  the  part  is  used  and  also  the  quantity  used  for  a  dozen 
of  each  finished  article.  The  estimated  sales  are  then  entered 
on  the  card  and  the  total  of  probable  parts  used  developed  there- 
from. The  minimum  is  then  set  as  a  certain  percentage  of  this 
quantity,  expressed  in  terms  of  so  many  days  supply,  as  30,  45 
or  60  days,  dependent  on  the  length  of  time  needed  to  make  the 
replacing  order  quantity. 

The  requirements  of  raw  material  are  ascertained  by  means  of 
a  "material  estimate  card."  This  card  shows  every  part  which 
uses  the  same  kind  and  size  of  material  shown,  and  the  quantity 
of  material  required  per  hundred.  The  number  of  parts  shown 
on  the  cards  is  then  employed  to  determine  the  probable  total 
material  requirements,  which  amount  is  then  used  to  determine 
stock  of  material  to  be  carried. 

The  minimum  must  be  of  a  size  sufficient  to  allow  the  produc- 
tion, shipment  and  receipt  of  the  replacing  order  quantity  and 
it,  too,  is  expressed  in  terms  of  so  many  days  supply,  as  30,  45, 
60  or  90  days. 

This  describes  briefly  a  very  simple  yet  accurate  means  of 
setting  minimum  quantities  and  is  peculiarly  suitable  to  assembly 
manufacture. 

The  Shortage  Report. — To  get  back  to  the  records.  Note 
that  in  Fig.  8  there  is  a  column  headed  "Apportioned"  which 
does  not  appear  in  Fig.  10.  Sometimes  it  is  desired  to  set  aside  a 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING 


31 


part  of  the  available  stock  for  an  order  which  it  is  known  will  be 
run  but  which  is  not  needed  at  once.  If  all  orders  are  run  as 
soon  as  the  requisition  for  the  material  is  issued,  this  is  not 
necessary. 

When  a  purchase  order  is  placed  and  when  material  is 
ordered  out  of  the  stock  room  by  requisition  the  transaction  is 
recorded  on  the  stock  record  for  that  material.  When  the  clerk 
in  charge  of  this  record  enters  a  requisition  which  brings  the 
supply  of  the  material  close  to  or  below  the  minimum  quantity 


WEEKLY  SHOR 

MAKE  PHVStCM.  COUfcT  Of,  ITEM* 

TAGE  REPORT 

BATE   fttoTcIl   Iff/t 

(DESCRIPTION 

MAXIMUM 
tO  BE 
CARRIED 

MINIMUM 
TO  BE 
CARRIED 

LAST 
ORDER, 
NUMBER 

NOW 
ON 
HAND 

fiAFEty  POSTS 

ISOO 

soo 

/>/73. 

H-1L 

BLADES 

2.SOO 

fOOO 

13  H-0 

II&0 

FIG.   11. — Shortage  report. 

he  enters  the  item  on  a  shortage  report  like  that  shown  in  Fig.  11. 

This  is  the  purchasing  agent's  authority  to  buy  more  of  the 
material.  He  has  no  authority  to  order  until  automatically 
instructed  to  by  the  stock  reaching  a  minimum. 

It  is  good  practice  to  send  this  shortage  report  to  the  stock  room 
so  that  the  stockkeeper  may  actually  count  the  stock  of  that 
item  as  a  check  against  the  record.  This  enables  him  to  keep  a 
frequent  check  easily  for  he  makes  his  physical  check  only  when 
the  stock  is  smallest  and  thus  can  be  counted  quickly.  Further- 
more the  check  is  made  at  the  most  important  time  for  if  error  is 
then  discovered  a  needless  order  is  prevented  from  going  forth. 

Some  shops  keep  a  double  check  to  prevent  the  stock  from 
falling  much  below  the  minimum  by  so  arranging  the  stock 
physically  that  the  stockkeeper  can  see  at  a  glance  when  the 
minimum  is  reached.  If  materials  or  supplies  come  in  packages 
the  minimum  quantity  packages  may  be  marked  with  red  crayon 
so  that  when  a  "red"  box  is  opened  the  storekeeper  knows  he 
has  gone  below  the  limit.  A  cord  may  be  tied  around  the  mini- 


32        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

mum  quantity  of  such  materials  as  steel  bars,  so  that  the  same 
effect  is  secured. 

If  the  stockkeeper  fills  a  requisition  which  brings  him  below  the 
minimum  and  he  receives  no  shortage  report  he  can  jog  up  the 
clerk  who  keeps  the  records. 

This  set  of  forms,  and  the  routine  we  have  described  will,  with 
minor  changes  to  make  them  fit  the  individual  shop,  do  for  most 
machine  shops.  Certainly  it  will  give  definite  control  which  is 
what  a  large  number  of  concerns  lack. 

The  problem  of  keeping  stock  records  is  somewhat  different 
in  the  shop  which  manufactures  large  quantities  of  the  same 
product  to  order.  An  example  of  this  type  is  the  Warner  Gear 
Co.  which  turns  out  automobile  transmissions,  differentials, 
clutches  and  so  on  in  large  quantities  to  individual  specifications. 
This  concern  buys  its  raw  material  to  cover  sales  orders  and  so 
carries  practically  no  permanent  stock  of  raw  materials.  Its 
stock  is  carried  solely  to  cover  sales  contracts  actually  on  hand. 

The  Production  Stock  and  Demand  Record. — The  sales  call 
for  delivery  of  a  certain  number  of  assemblies  monthly.  There- 
fore, in  purchasing  the  needed  raw  materials,  the  deliveries  are 
asked  for  in  such  monthly  installments  as  will  permit  meeting  the 
requirements  of  the  sales  order. 

As  the  planning  department  is  responsible  for  material  from 
the  time  it  arrives  in  the  plant  until  the  finished  product  is 
shipped,  and  as  it  must  have  absolute  control  of  raw  stock,  a 
single  form  has  been  devised  to  give  the  needed  bird's-eye  view  of 
material.  It  is  shown  in  Fig.  12  and  is  called  the  "  production 
stock  and  demand  record." 

This  provides  a  sheet  for  each  part  and  shows  not  only  each 
customer's  requirements  as  to  delivery  but  the  exact  condition  of 
all  of  the  parts  of  this  kind.  From  the  data  on  this  form  it  is 
possible  to  tell  quickly  how  much  raw  material  for  the  part  is  in 
stock,  how  much  is  in  process  and  how  much  is  in  finished  stock. 
It  tells  in  addition  how  many  pieces  have  been  rejected,  how 
many  reclaimed  and  how  many  scrapped.  This  is  a  most  valu- 
able form  in  other  ways  which  will  be  discussed  in  more 
details  in  later  chapters  on  planning.  A  somewhat  simplified 
form  having  the  same  application  is  shown  in  Fig.  13.  It  is  self- 
explanatory. 

Non-productive  Stores. — So  much  for  keeping  track  of  the 
productive  stores.  The  same  forms  and  routine  will  do  for  the 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING 


33 


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34        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


non-productive  stores  or 
supplies.  One  thing  addi- 
tional is  worth  consider- 
ing with  them,  however; 
that  is  the  need  to  prevent 
buying  of  supplies  which 
are  obsolete  or  the  use  of 
which  is  declining.  This 
can  best  be  done  by  the 
clerk  who  keeps  the  store's 
record.  When  he  sees  from 
his  ledger  sheet  or  card 
that  the  use  of  a  supply  is 
falling  off  he  should  call 
the  fact  to  the  attention 
of  an  executive. 

Some  shops  find  it  well 
to  have  a  committee  on 
obsolescence  which  from 
time  to  time  passes  on  the 
need  for  continued  carrying 
of  supplies. 

The  Perpetual  Inventory. — Theo- 
retically a  minimum  stock  record  or 
perpetual  inventory  will  do  away  with 
the  need  of  that  bugbear — the  taking 
of  a  complete  physical  inventory. 
But  it  seldom  does.  If  the  items  are 
frequently  counted  and  checked  with 
the  records,  as  here  recommended,  it 
is  often  possible  to  keep  the  discrep- 
ancy within  1  per  cent — and  usually 
within  5  per  cent.  But  that  is  not 
close  enough.  And  after  all,  the 
goods  in  process  must  always  be  in- 
ventoried by  actual  count  and  it  is 
that  item  usually  which  takes  the 
time.  Safety  dictates  that  once  a 
year  all  stock  be  inventoried  and 
the  records  changed  to  agree  with 
the  actual. 


NEED  FOR  SYSTEMATIC  STOCK  KEEPING  35 

The  fact  that  it  is  so  difficult  to  get  perpetual  stock  records 
to  agree  exactly  with  the  facts  is  one  reason  why  so  many  manu- 
facturers throw  up  their  hands  and  look  on  the  attempt  to  keep 
records  as  useless.  That  is  wrong.  Even  an  approximate 
record  of  the  stock  on  hand  is  better  than  none — that  is  if  the 
manufacturer  wants  to  save  himself  production  troubles. 

Whatever  records  for  keeping  track  of  stock  are  adopted,  it  is 
well  to  test  the  routine  by  asking  how  will  it  serve  its  purpose. 
It  should  prevent  theft,  over-buying,  and  delays  to  production 
caused  by  shortage.  It  should  assure  that  all  materials  used  will 
be  accounted  for  in  the  costs,  and  it  should  make  inventory- 
taking  easy.  It  should  make  it  easy  to  find  stock  that  is  needed. 
In  short  it  should  always  facilitate,  and  never  hinder,  production. 


CHAPTER  IV 
ENGINEERING  THE  PRODUCT 

Perhaps  not  even  a  majority  of  machine  shops  have  set  aside 
office  space  which  they  dignify  with  the  name  "  engineering 
department."  But  in  most  shops  it  is  safe  to  say  there  is  someone 
who,  as  part  of  his  duties  at  least,  does  some  preliminary  engineer- 
ing of  the  product.  For  simplicity's  sake,  therefore,  we  will  use 
the  term  " engineering  department." 

In  small  job  shops,  the  customer  sits  down  with  the  shop's 
foreman  and  describes  the  device  he  wants  made — perhaps 
amplifying  his  ideas  with  a  rough  sketch.  The  foreman  passes 
these  ideas  on  to  the  pattern  maker  and  to  the  various  machinists 
who  build  the  device,  solving  their  own  problems  of  design, 
tooling  and  so  on,  as  they  come  up.  Until  planning  began  to 
develop,  that  was  the  general  practice.  In  shops,  however, 
where  production  is  highly  planned,  nothing  is  left  to  the  discre- 
tion of  the  shop;  it  needs  only  to  follow  the  directions  issued  to 
it.  Every  step  has  been  engineered.  Between  these  two  ex- 
tremes nearly  every  degree  of  preparation  by  the  engineering 
department  may  be  found. 

Why  Have  an  Engineering  Department? — The  function  of  the 
engineering  department  is  to  study  the  product  and  the  shop 
processes  so  that  the  design  and  manufacture  may  be  most 
economical.  It  acts  as  a  road  roller,  smoothing  the  way  of  the 
manufacturing  departments.  Completely  accomplished,  the 
factory  will  have  nothing  to  do  but  perform  productive  work  on 
the  product.  Methods  will  be  previously  determined  for  them. 

This  function  divides  in  two;  first,  designing  the  product  and 
the  tools  with  which  it  will  be  made;  and  second,  furnishing  the 
data  which  the  planning  department  will  use  in  planning  the 
production. 

In  some  shops,  of  course,  it  is  not  feasible  to  plan  the  produc- 
tion in  detail.  It  would  be  possible  but  not  sensible.  Strictly 
speaking,  a  job  shop  about  to  build  a  special  intricate  machine, 
which  it  has  never  made  before  and  may  never  make  again,  can 
plan  every  step  of  the  making.  But  the  preliminary  planning 

36 


ENGINEERING  THE  PRODUCT  37 

itself  would  cost  more  than  could  be  saved.  We  only  favor 
planning  when  it  increases  profits.  It  is  only,  as  a  rule,  when  a 
product,  with  only  slight  changes,  is  to  be  run  in  quantities 
that  the  refinements  of  planning  pay. 

Designing  the  Product. — Although  it  would  obviously  be 
foolish  to  plan  the  manufacture  of  a  single  special  machine  in 
detail,  the  engineering  department  may  even  here  prepare  the 
way  to  a  certain  degree,  leaving  much  to  the  discretion  of  the 
men  in  the  shop. 

Among  the  duties  of  design  which  devolve  upon  the  engineering 
department  are  the  following: 

1.  To  adapt  the  product  to  its  use. 

2.  To  design  it  so  that  material  will  not  be  unduly  wasted. 

3.  To  prevent  labor  waste  caused  by  designs  which  are  clumsy  to  machine 
or  to  handle. 

4.  To  specify  raw  materials  and  test  them  when  necessary. 

5.  To  design  the  tools,  jigs  and  fixtures  which  will  serve  best. 

6.  To  make  as  many  parts  as  possible  interchangeable  among  several 
assemblies. 

7.  To  design  special  machines  needed  by  the  shop  and  to  consult  on  the 
purchase  of  new  machines. 

8.  To  decide  whether  parts  shall  be  manufactured  by  the  shop  or  pur- 
chased outside. 

How  Savings  Are  Made. — These  are  the  customary  duties  of 
the  engineering  department,  and  yet  they  are  often  made  promi- 
nent by  being  neglected.  We  could  cite  hundreds  of  instances 
where  attention  to  these  items  has  made  great  savings.  For 
instance,  in  one  plant  where  a  plate  had  originally  been  made  of 
J^-in.  cast  iron,  the  design  was  changed  to  copper,  but  the 
thickness  was  not  changed.  A  sheet  of  J^-in.  copper  would  serve 
the  purpose  equally  well  and  when  the  change  was  made,  almost 
$13,000  was  saved  annually. 

Some  manufacturers  take  a  costly  pride  in  "making  everything 
in  their  own  shops."  Frequently  we  find  shops  equipped  with 
automatic  machines  which  are  not  warranted.  The  small 
quantities  of  screw  machine  products  used  require  that  the  set-up 
be  changed  at  such  short  intervals  that  it  would  be  much  more 
economical  to  buy  them  outside.  Whether  to  make  or  to  buy 
can  be  determined  to  a  fine  point  by  the  engineering  department 
working  with  the  purchasing  agent  and  the  cost  department. 

Standardizing  Design. — Thoughtless  designers  waste  much 
money  by  specifying  a  different  screw  or  bolt  for  many  new 


38        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

designs.  Admittedly,  screws,  nuts,  bolts  and  so  on  cost  little. 
A  $5  bill  will  buy  a  lot  of  them,  which  undoubtedly  was  the 
reason  that  one  shop  had  in  one  year  bought  37,400  screws  of 
184  varieties;  an  average  of  only  203  screws  of  each  variety. 

It  was  easy  to  eliminate  this.  The  sizes  of  screws,  bolts,  nuts, 
nails  and  so  on  most  generally  used  were  determined  and  those 
sizes  made  standard.  Then,  if  a  draftsman  wanted  something 
that  was  not  in  stock,  he  had  to  prove  that  nothing  else  would  do. 

This  standardization  reduced  the  asset  " General  Stores"  from 
$50,000  to  $30,000.  By  merely  reducing  the  varieties  of  sundry 
supplies,  the  quantity  was  so  reduced  that  $20,000  was  released 
from  the  store  room. 

Here  is  another  " horrible" — but  not  unusual — " example." 
This  shop  carried  in  stock  nine  sizes  of  square  brass  rods,  30 
sizes  of  round  and  12  sizes  of  hexagonal,  besides  much  larger 
assortments  of  brass  and  german  silver,  wire  and  strips,  most  of 
which  were  unnecessary.  After  all  of  these  items  were  checked 
against  the  designs  the  need  for  77  per  cent  of  them  was  elimi- 
nated. Four  of  the  parts  alone  showed  this  condition: 

PART                                                                            STOCK  STOCK 

No.             NAME  OF  PART              MATERIAL         USED  RECOMMENDED 

322A     Binding  post  screw Brass          ^  in.  sq.  T5^  in.  sq. 

17B     Special  nut Brass          -f$  in.  sq.  £    in.  sq. 

217A     Binding  post  screw Brass           £  in.  sq.  TV  in-  sq. 

912 A     Binding  post  screw Brass           \  in.  sq.  -jV  in.  sq. 

\\  in.  stock  used  in  no  other  part  than  322A. 
•j\  in.  stock  used  in  no  other  part  than    17B. 
\  in.  stock  used  in  no  other  part  than  217A  and  912A. 

Note  that  in  three  of  the  four  cases  the  size  of  the  material 
used  was  reduced.  The  amount  of  money  tied  up  in  stock  was 
not  only  reduced,  but  a  saving  of  a  few  thousand  dollars  a  year 
was  made  due  to  reduced  material  consumption. 

Very  similar  to  this  saving  is  the  one  that  can  be  made  by 
making  the  same  part  do  for  several  assemblies.  Too  often  the 
only  difference  between  some  of  the  parts  common  to  two  or 
more  assemblies  is  a  slight  difference  in  a  dimension  which  might 
well  be  the  same.  One  shop  which  turns  out  a  single  type  of 
product,  to  the  customer's  specification,  formerly  made  every 
part  to  order.  A  study  by  the  engineering  department  showed 
that  more  than  half  of  the  parts  might  well  be  standard.  These 


ENGINEERING  THE  PRODUCT  39 

parts  are  now  manufactured  to  stock,  and  only  a  few  go  on  special 
shop  orders.  This  enables  what  is  practically  a  job  shop  to 
plan  a  good  share  of  its  production  with  the  ensuing  economies. 

Some  of  these  savings  may  seem  small,  but  in  the  aggregate 
they  are  well  worth  while  in  any  shop.  Just  recently  there  was 
an  instance  where  nearly  a  hundred  thousand  dollars  worth  of 
new  machine  tools  had  been  bought  by  the  shop  without  con- 
sulting the  engineering  department.  It  was  found  out  too  late 
that  changes  in  design  of  the  product  were  under  way  which 
would  make  these  tools  useless  in  that  plant.  Stupidity?  Not 
at  all.  That  shop  is  unusually  well  run,  but  there  was  not  quite 
close  enough  contact  between  the  shop  and  the  engineering 
department.  Point  7  had  been  neglected.  It  is  blunders  like 
these  which  make  us  sure  that  even  the  obvious  things  may  well 
be  mentioned  now  and  then. 

Departmental  Cooperation. — In  all  of  the  activities  we  have 
mentioned  it  is  essential  that  the  engineering  department  work 
closely  with  the  shop  and  purchasing  authorities.  Sometimes 
informal  contact  when  specific  points  come  up  will  do,  but  this 
method  offers  chances  for  consultation  to  be  overlooked. 

Regular  meetings  of  representatives  from  each  of  these  depart- 
ments often  work  well  and  tend  to  systematize  the  contact. 
When  the  practical  obstacles  which  face  the  shop  and  the  pur- 
chasing agent  are  known  to  the  engineer,  he  can  usually  work 
out  a  design  which  will  be  a  successful  compromise  between  the 
ideas  of  the  customer,  the  condition  of  the  market  and  the  limita- 
tions of  manufacturing. 

Frequently  the  shop  will  find  it  expedient  to  change  a  design 
slightly  to  fit  its  equipment,  although  with  proper  contact  the 
engineering  department  should  have  foreseen  this  need.  But 
if  such  a  change  must  be  made,  the  shop  must  notify  the  engineer- 
ing department  so  that  the  drawings  and  perhaps  the  patterns 
may  be  changed  and  the  obsolete  ones  destroyed. 

A  hydro-electric  plant  was  partly  shut  down  for  several  days 
because  this  had  not  been  done  in  the  shop  which  supplied  its 
waterwheels.  Here,  the  shop  had  seen  fit  to  make  a  slight  change 
which  resulted  in  lengthening  a  certain  part.  When  one  of  these 
parts  failed  in  operation,  the  hydro-electric  concern  wired  the 
shop  for  a  duplicate.  The  drawings  had  not  been  changed  and  a 
new  part — inches  too  short — was  made  up  by  the  shop. 

Keep  Drawings  up  to  Date. — Unless  changes  are  promptly 


40 


PRODUCTION  ENGINEERING  AND  COST  KEEPING 


reported,  obsolete  parts  may  continue  to  be  made.     Here  is  an 
instance  typical  of  dozens: 

It  had  seemed  desirable  to  change  the  location  of  bolt-hole 
drillings  in  a  cast-iron  door  frame.     When  the  stock  was  gone 


s 


Give 
Betw 
Seg 

Drawn:- 
Checked 
A  ro 


over  there  was  found  two  different  frames  in  stock,  each  bearing 
the  same  part  number.  To  the  casual  observer,  it  would  have 
seemed  that  the  stock  of  this  part  was  348.  As  a  matter  of  fact, 
186  were  obsolete,  having  been  made  up  from  the  old  drawings 
which  had  not  been  changed  until  months  after  the  design  had 
actually  been  changed.  Not  only  were  there  186  useless  castings 


ENGINEERING  THE  PRODUCT  41 

tying  up  money  and  taking  up  room,  but  time  and  again  produc- 
tion which  had  been  planned  on  the  basis  of  the  quantity  shown 
in  stock,  had  been  delayed  until  a  sufficient  quantity  of  the  new 
design  could  be  made  up. 

Filing  the  Drawings. — A  good  form  of  detail  drawing,  with 
proper  places  to  show  changes,  is  shown  in  Fig.  14.  For  con- 
venient handling  and  filing  it  is  well  to  make  drawings  8|  by  11 
in.,  or  in  multiples  of  that  size,  the  larger  ones  being  folded  to  the 
8|-  by  11-in.  size.  This  permits  all  drawings  to  be  filed  in 
ordinary  vertical  letter  files,  is  a  good  size  for  mailing  and  is  an 
economical  cutting  size  both  for  drawing  paper  and  tracing  cloth. 

It  is  customary  to  file  blueprints  in  sets,  all  of  the  details  of  an 
assembly  together.  This  is  good  practice,  but  sometimes  it  is 
well  also  to  have  a  file  in  which  all  drawings  of  similar  parts  such 
as  faucets,  swivels,  bolts,  connecting  rods,  etc.,  will  be  together. 
This  is  for  general  reference  and  prevents  designing  a  new  part 
when  an  old  one,  or  at  least  the  patterns,  tools  and  fixtures  for 
making  it,  are  already  available.  Before  commencing  to  design, 
the  engineer  can  review  this  file. 

So  much  for  the  design  side  of  engineering. 

What  the  Engineering  Department  Should  Do. — In  the 
"smoothing  out"  phase  of  engineering,  which  prepares  an  order 
for  the  shop  we  find  that  the  engineering  department  should: 

1.  Assign  part  numbers  to  each  part. 

2.  Furnish  lists  of  all  parts  which  make  up  an  assembly. 

3.  Provide  detail  drawings  of  each  part. 

4.  List  the  operations  and  their  sequence. 

5.  Specify  the  jigs,  tools  and  fixtures  needed  for  each  operation. 

6.  Provide  tooling  instructions. 

7.  Provide  instructions  as  to  speeds  and  feeds. 

With  these  points  settled  for  each  assembly,  the  planning 
department  can  go  ahead  and  plan  intelligently. 

It  might  seem  that  assigning  part  numbers  is  a  strictly  clerical 
job,  but  actually  it  can  only  be  done  to  best  advantage  by  some- 
one thoroughly  acquainted  with  the  product.  If  a  part  used  in 
several  assemblies  is  given  a  separate  part  number  for  each 
assembly,  almost  invariably  several  of  the  same  part  will  be 
carried — one  supply  for  each  number.  Changes,  too,  are  likely 
to  be  made  which  will  often  require  a  change  in  part  number  and 
the  engineering  department  is  the  one  to  know  first  of  these 
changes. 


42        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


The  Parts  List. — Whether  or  not  the  production  in  a  shop  is 
closely  planned,  the  first  step  when  an  order  is  received  is  to  get 
from  the  engineering  department  a  complete  bill  of  material  or 

list  of  the  parts  comprising 
the  assembly.  How  often  we 
have  seen  machines  cluttering 
up  the  assembly  floor  waiting 
for  a  single  part  which  some- 
one forgot  to  order  into  the 
shop  weeks  before!  Leaving 
it  to  a  foreman  to  take  off  a 
list  of  material  from  a  blue 
print  is  a  risky  method  of 
assuming  that  everything 
needed  for  an  assembly  will 
be  made.  Waiting  for  an  as- 
sembly-floor shortage  report 
to  start  production  is  an 
expensive  procedure. 

The  parts  list  shown  in  Fig. 
15  is  used  by  the  Warner 
Gear  Co.  which  has  a  highly- 
planned  shop,  making  auto- 
mobile transmissions,  gears, 
differentials  and  so  forth,  in 
large  quantities  to  order. 

This  bill  of  material  which 
is  filled  in  by  the  engineering 
department  for  each  new 
order  shows  the  part  number, 
part  name,  whether  the  part 
in  question  is  to  be  purchased 
or  manufactured,  the  number 
required  per  assembly,  the 
kind  of  material,  the  symbol 

for  the  material  and  the  dimensions  of  the  rough  stock. 
The  four  blank  columns  on  the  extreme  right  hand  side  of  the 
bill,  are  blacked  in  so  as  to  show  up  white  when  blueprinted. 

These  columns  serve  various  purposes.  The  production 
department  notes  in  them  from  the  stock  record  the  number  of 
pieces  required  for  the  order,  the  number  of  pieces  on  hand,  and 


ENGINEERING  THE  PRODUCT  43 

the  number  of  pieces  necessary  to  be  purchased.  They  are 
used  by  the  cost  department  for  figuring  the  final  cost  of  the 
assembly;  that  is,  by  assigning  to  one  column  each  of  the  follow- 
ing items:  material,  labor  and  the  expense  against  each  part. 

On  the  copy  of  the  parts  list  which  goes  to  the  tool-designing 
department — a  section  of  the  engineering  department — are 
noted  any  parts  which  are  new  or  which  require  different  machin- 
ing from  previous  parts.  This  aids  the  tool-designing  depart- 
ment to  determine  what  new  tools  are  necessary. 

After  going  over  the  parts  list  and  routings  for  the  new  parts, 
the  tool-designing  department  lists  up  all  new  tools  required 
with  the  part  and  operation  number  on  which  they  are  required. 
One  copy  of  this  list  is  sent  to  the  production  department,  in 
order  that  the  date  each  tool  is  required  may  be  known.  This 
list  after  being  dated  is  sent  back  to  the  tool-designing  department 
to  determine  the  sequence  in  which  the  tools  must  be  finished. 

The  parts  list  is  really  the  starting  point  for  planning  through- 
out the  shop.  We  will  see  in  detail  how  it  is  used  in  later 
chapters. 

We  speak  frequently  of  a  "  well-planned  shop."  By  that  we  do 
not  necessarily  mean  " completely  planned"  or  "rigidly  planned." 
Some  shops  can  be  completely  planned;  few  can  safely  be  rigidly 
planned.  The  well-planned  shop  is  the  one  which  plans  every 
operation  which  can  economically  be  planned.  In  many  shops 
of  the  job  type,  the  planning  will  be  confined  to  smoothing  the 
way  for  the  order  and  most  of  the  planning  will  be  the  preliminary 
preparation  by  the  engineering  department. 

It  is  evident  from  a  glance  at  the  duties  already  listed  as 
having  a  bearing  on  planning,  that  many  of  the  preliminary 
activities  of  the  engineering  department  are  based  on  time  studies. 
Both  the  planning  department  and  the  engineering  department 
use  the  records  of  the  time  study  men,  and  it  has  always  seemed 
to  us  that  logically  this  activity  should  come  under  the  engineer- 
ing. It  is  not,  however,  a  matter  of  vital  importance  who  the 
time  study  men  report  to,  provided  the  engineering  department 
is  able  to  get  quickly  the  accurate  time  studies  that  it  needs. 

The  instructions  to  workmen  on  speeds  and  feeds  are  of  course 
based  on  time  studies.  Where  a  large  number  of  a  part  is  to  be 
made,  it  is  well  to  take  time  studies,  from  which  the  best  tooling 
instructions  can  be  drawn  up,  and  which  will  serve  as  a  guide  in 
designing  the  best  jigs  and  fixtures. 


44        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Paving  the  Way  to  Production. — It  is  not  enough  merely  to 
have  the  proper  tools,  jigs  and  fixtures  on  hand.  The  engineering 
department  must  specif  y  in  writing  the  ones  to  be  used  on  each  part. 
After  foremen  and  toolroom  employes  waste  hours  at  a  time  in  a 
blind  search  for  the  right  tools  after  the  job  is  at  the  machine, 
and  failing  to  find  them,  hold  up  work  while  some  are  made, 
while  the  wanted  ones  are  likely  to  be  around  somewhere. 

If  on  the  drawing,  or  on  some  instruction  card  numbered  to 
correspond  with  the  part,  the  tools,  jigs  and  fixtures  are  listed, 
there  can  be  no  chance  of  such  delays.  We  strongly  recommend 
that  the  same  number  be  given  to  the  part,  the  drawing,  the 
patterns  and  core  boxes,  the  tools  and  fixtures.  This  will  avoid 
much  confusion  and  the  delay  that  always  accompanies  confusion. 

In  some  plants  the  activities  of  the  engineering  department  are 
about  all  the  planning  that  can  be  done ,  in  others  much  more  is 
feasible.  In  either  type  of  plant,  it  is  up  to  the  engineering 
department  to  determine  what  must  be  made,  the  methods  to 
be  used  and  to  provide  the  best  tools  for  doing  the  work.  The 
manufacturing  departments  are  thus  left  free  to  do  what  they 
are  supposed  to  do — make  the  product,  and  nothing  else. 


CHAPTER  V 

TOOL  ISSUE 

Here  is  an  actual  conversation  which  is  typical  of  what  occurs 
daily  in  too  many  machine  shops: 

Machinist  (at  toolroom  window) — "Give  me  a  l^Q-in.  reamer 
and  socket." 

Storekeeper — "  Here's  the  socket.  Get  the  reamer  from  John 
Jones.  I  think  he  had  it  last." 

Fifteen  minutes  later: 

Machinist — "He  hasn't  got  it  and  I  can't  find  it." 

Foreman  (who  overheard  him) — "Well,  keep  lookin'.  Ain't 
Jim  told  you  he  ain't  got  it?" 

The  conversation  grew  acrimonious,  leading  to  impolite 
reminders  by  the  workman  that  he  was  on  piece  work  and 
wouldn't  give  his  time  to  the  search  and  to  vituperative  com- 
ments by  the  allied  storekeeper  and  foreman. 

Preventing  Lost  Time. — Too  frequently  the  time  lost  in 
changing  jobs  and  obtaining  new  tools  is  not  sufficiently  con- 
sidered. The  management  may  be  conscious  of  the  loss,  but 
even  in  the  most  efficient  plant  the  sum  total  of  cost  is  seldom 
known.  A  study  in  this  machine  shop  showed  that  the  improper 
racking  and  follow-up  of  tools  and  the  consequent  loss  of  time 
amounted  to  13  per  cent  of  the  productive  labor  payroll.  If, 
under  such  conditions,  the  man's  time  were  the  only  loss,  it 
would  be  bad  enough.  But  it  isn't.  First,  an  expensive  machine 
is  thrown  into  the  non-productive  list,  piling  up  its  many  items 
of  overhead  expense.  The  production  of  the  shop  as  a  whole  is 
decreased,  throwing  a  heavier  burden  of  general  expense  on  every 
article  manufactured.  The  rate  of  turnover  is  diminished, 
increasing  the  working  capital  needed. 

Then  there  is  the  moral  effect  on  the  men.  The  average  work- 
ing man  takes  his  cue  from  his  leaders.  If  the  foreman  is  efficient 
and  dispatches  his  work  to  the  best  advantage,  the  men  will 
generally  do  their  share;  but  if  the  foreman  is  careless  and  does 
not  attend  to  detail  the  men  will  become  imbued  with  the  same 
spirit  and  do  their  work  in  a  listless  "I'11-do-what-I-must" 

45 


46        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

manner.  Delays  do  not  bother  them  and  they  lose  the  ambition 
to  turn  out  their  work  quickly  and  efficiently.  When  this  con- 
dition exists  the  quality  of  their  work  is  also  very  apt  to  suffer. 
After  considering  the  many  phases  of  this  question  it  will  be 
realized  that  the  initial  labor  loss  is  small  in  comparison  with  the 
ultimate. 

If  a  machine  shop  has  the  crudest  vestiges  of  a  cost  system,  its 
executives  must  realize  the  losses  that  such  a  waste  of  productive 
time  causes.  Yet  the  fear  of  system,  which  to  many  means 
"red  tape,"  makes  them  prefer  the  loss  to  the  cure.  There  is 
some  cause  for  this  feeling;  but  in  the  toolroom,  as  elsewhere,  it 
is  quite  easy  to  have  well-ordered  handling  and  records  without 
red  tape.  We  would  be  the  last  to  advocate  routine  for  the  sake 
of  the  routine. 

The  Best  Practice. — There  are  certain  rules  which  should  be 
followed  by  a  well-run  shop  and  which  allow  of  practically  no 
exceptions.  There  are  other  points  which  must  be  settled  by 
the  individual  shop.  The  absolute  ones  are: 

1.  The  proper  tools  should  be  available  when  the  workman  is  ready  to 
start  an  operation. 

2.  The  exact  location  of  every  tool  should  be  known. 

3.  It  should  be  possible  to  tell  at  once  just  which  tools  any  man  has. 

4.  No  workman  should  be  allowed  to  sharpen,  repair  or  make  tools. 

The  questions  which  must  be  settled  in  the  light  of  the  peculiar 
needs  of  each  shop  are: 

1.  Shall  workmen  own  any  tools? 

2.  Shall  tools  be  delivered  to  men  or  called  for  by  them  at  the  toolroom? 

3.  Shall  men  specify  the  tools  needed? 

4.  Shall  any  tools  remain  permanently  at  the  machine? 

We  saw  in  a  preceding  chapter  how  the  engineering  department 
notifies  the  tool  designers  what  is  needed  when  a  part  is  to  be 
made  for  the  first  time.  This  is  done  early  so  that  the  tools, 
jigs  and  fixtures  may  be  ready  before  the  part  is  released  to  the 
shop.  This  can  be  done  whether  a  single  part  is  to  be  made  or  a 
hundred  thousand.  Figure  16  shows  a  form  on  which  new  tools 
may  be  ordered.  A  simple  and  obvious  routine  can  be  relied 
upon  to  follow  the  making  of  the  tools  through  all  the  operations 
until  they  are  delivered  to  the  tool  crib.  The  form  shown  in 
Fig.  17  may  serve  as  a  follow-up  reminder  whether  the  tool  is 
made  in  the  plant  or  ordered  from  the  outside. 

The  Double  Check  System. — It  is,  of  course,  simple  enough  to 


TOOL  ISSUE 


47 


know  where  tools  are,  if  the  customary  single  check  system  is 
used.     But  it  is  also  desirable  to  know  what  tools  are  in  the 


TOOL  ORDER 


TOOLROOM.    •>.•*•*  mm  TNI  f 


6868 


•rumor  MTC_ 


FIG.   16. — Tool  order  form. 


9  10  11  It  13  14  18  1«  17  IS  10  10  SI  **  »•  S4  IB  t«  t7  «•  *•  SO  at 

TOOL  FOLLOW-UP  CARD 


RgQ.  He. 


TOOL  ORDER  No. 


DATE  OF  ORDER 


WHtR«   MADE 


AMOUNT  ORDERED 


DATE  PROMISED 


DATE  COMPLETED 


IMOUNT  COMPLETED 


PARTS      A  •  PtJINT 


FIG.  17. — Follow-up  card  on  new  tools. 

possession  of  any  man.  This  can  be  accomplished  by  the  double 
check  system,  under  which  not  only  is  a  brass  check  with  the 
workman's  number  hung  in  place  of  the  tool,  but  a  check  bearing 


48        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

the  tool  number  is  hung  on  a  board  under  the  workman's  number. 
Thus,  if  a  workman  leaves  the  company,  the  exact  tools  in  his 
possession  are  known.  This  method  can  be  improved  upon  as 
will  be  indicated  later. 

The  favorite  gossiping  place  in  any  shop  is  the  grinder.  Here 
men  congregate  and  have  a  perfect  alibi,  for  they  "are  waiting 
to  get  at  the  wheel."  It's  amusing,  in  shops  which  subdivide 
operations  to  the  last  hair,  to  see  men  who  are  little  more  than 
machine  tenders,  sharpening  their  own  tools.  The  management 
does  not  consider  them  all-round  mechanics,  but  apparently 
feels  they  are  toolmakers. 

Tools  should  be  kept  in  condition  by  men  who  do  nothing  else. 
This  saves  the  time  of  productive  men  and  assures  that  the  tools 
will  be  ground  to  give  the  best  cutting  results.  In  every  shop 
employing  50  or  more  men  it  would  pay  to  have  at  least  one  man 
to  keep  tools  in  condition. 

When  tools  are  turned  in  to  the  crib,  they  should  be  examined 
and  repaired,  if  they  need  it,  before  being  issued  again. 

Should  a  Man  Own  His  Tools? — As  a  rule  it  proves  best  for  the 
shop  to  furnish  all  tools  used.  This,  however,  will  depend  to  a 
degree  upon  the  nature  of  the  work  and  the  kind  of  men  em- 
ployed. If  a  shop  is  fortunate  enough  to  have  a  few  tempera- 
mental, all-round  mechanics  it  may  be  wise  to  " compromise" 
and  let  the  men  use  their  own  tools  if  they  want  to. 

The  big  objection  to  a  man  owning  his  own  gages  is  that  he 
will  not  usually  provide  a  sufficient  range,  nor  are  the  gages  he 
possesses  always  well  adapted  to  the  work  he  is  doing.  He  may 
have  a  micrometer,  a  pair  of  calipers,  a  depth  gage  and  so  on. 
In  up-to-date '  shops  on  repetitive  work,  snap  gages  are  used, 
which,  of  course,  the  men  cannot  be  expected  to  furnish  for 
every  job  they  may  be  put  on. 

If  a  man  furnishes  some  of  his  own  tools,  it  is,  of  course,  out 
of  the  question  for  whoever  inspects  his  kit  when  he  leaves  the 
plant  to  tell  which  tools  belong  to  him  and  which  to  the  company, 
unless,  as  seldom  is  done,  the  company  tools  are  stamped  with 
the  company  name. 

In  the  planned  shop,  it  is,  as  a  rule,  best  to  have  tools  delivered 
to  the  men  a  short  time  before  a  new  job  is  started.  This  is 
handled  by  the  planning  department  which  knows  not  only  what 
tools  are  needed,  but  just  when  they  will  be  needed.  In  job 
shops  where  it  is  not  feasible  to  forecast  the  approximate  time 


TOOL  ISSUE  49 

when  a  new  job  will  start,  it  is  best  for  the  workman,  or  perhaps 
the  foreman,  to  get  the  tools. 

It  is  always  possible  to  determine  what  tools  will  be  needed  for 
a  job.  This  should  be  done  by  the  engineering  department.  Of 
course  if  no  engineering  department  exists,  the  judgment  of  the 
workman  or  his  foreman  will  have  to  govern. 

As  a  rule  it  is  best  to  have  the  tool  turned  in  to  the  crib  when 
an  operation  is  finished.  There  is  no  great  objection,  however, 
to  having  certain  standard  cutting  tools  for  lathes,  planers,  etc., 
remain  permanently  at  the  machine. 

Wasting  Tools  and  Time. — However  these  questions  are 
answered,  we  want  to  impress  the  importance  of  having  a  close 
control  of  tools  exercised  by  the  tool  crib.  If  this  is  not  done, 
great  wastes  can  go  on. 

Take,  for  instance,  the  case  where  it  was  possible  to  cut,  at 
pre-war  prices,  the  investment  in  tool  steel  $13,000.  It  was 
evident,  on  casual  observation,  that  the  investment  in  tool  steel 
was  too  high. 

There  was  no  real  system  in  use  for  handling  tools,  nor  were 
there  any  standard  prints  from  which  they  could  be  made.  Each 
foreman,  as  he  needed,  or  thought  he  needed,  tools,  or  even  at 
times  the  operator  on  the  machine,  would  go  to  the  stock  room 
and  get  sufficient  steel  to  make  such  tools  as  he  wanted. 

He  would  then  take  this  stock  to  the  blacksmith  who  would 
forge  them  up  for  him  in  the  way  he  described.  If  he  had  a  pre- 
ference for  a  tool  with  a  large  clearance  or  rake  angle,  the  tool 
was  made  up  that  way.  Frequently  another  foreman  was 
observed  requesting  a  tool  for  identically  the  same  work,  but 
with  a  different  angle. 

Sometimes  a  foreman  from  one  of  the  outlying  buildings  would 
send  in  a  written  order  for  a  quantity  of  a  certain  tool  which  he 
would  describe  roughly.  If  he  did  not  receive  them  he  might 
send  in  another  order,  not  mentioning  the  first  at  all.  In  due 
time  he  would  receive  just  twice  as  many  tools  as  he  ordered  and 
that  would  probably  be  about  three  times  as  many  as  he  needed. 

Saving  $4,200. — The  investigation  was  started  in  the  tool  crib. 
There  did  not  seem  to  be  a  very  great  congestion  in  the  tool  cribs, 
although  there  were  seemingly  a  few  more  tools  there  than 
necessary,  but  on  going  out  into  the  shop  to  the  machines 
considerable  trouble  was  observed 

A  night  and  day  turn  was  employed,  and  as  the  tools  were 


50        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

ground  by  hand  by  the  operator  himself,  no  man  was  ever  satis- 
fied with  any  other  man's  grinding;  consequently,  the  night  man 
on  a  job  always  tried  to  hold  his  tools  away  from  the  day  man  and 
vice  versa.  There  was  always  a  duplicate  set  at  a  machine  and 
frequently  sets  for  several  jobs  which  the  operators  had  collected 
and  never  turned  in. 

At  10  machines  was  found  an  average  of  30  tools  weighing  on 
an  average,  5  Ib.  apiece.  These  were  all  of  high-grade  tool  steel, 
costing  at  that  time  about  $6  a  pound.  One  can  easily  see  that 
here  was  a  lot  of  money  tied  up  in  tools  that  only  a  few  operators 
could  use: 

30  tools  at  5  Ib.  each  =  150  Ib.  per  machine. 
150  Ib.  at  $6  per  pound  =  $900  per  machine. 
$900  X  10  machines  =  $9,000. 

Then  at  42  other  machines  we  found  the  following  conditions : 

5  tools  at  4  Ib.  each  =  20  Ib.  per  machine. 
20  Ib.  at  $5  per  pound  =  $100  per  machine. 
$100  X  42  machines  =  $4,200. 

A  lower  priced  steel  was  used  on  these  machines.  These  figures 
do  not  include  tools  in  use  at  the  machine  at  that  time. 

Here  is  a  total  of  $13,200  tied  up  in  tool  steel  which  was  being 
used  only  a  small  portion  of  the  time,  as  only  a  maximum  of  eight 
tools  was  ever  used  at  one  time  on  one  job,  and  many  jobs  used 
considerably  fewer.  While  one  job  was  running  on  the  machine, 
the  tools  for  all  the  other  jobs  were  idle  in  the  workman's  tool 
box.  Had  they  been  handled  from  a  central  crib  they  might 
have  been  in  use  on  some  other  machine. 

Several  of  the  men's  tool  boxes  were  so  heavy  that  it  was 
impossible  to  move  them  to  take  them  into  the  crib,  and  the 
tools  had  to  be  taken  out  and  piled  on  a  hand  truck.  These 
tools  were  all  taken  into  the  central  tool  crib,  and  all  similar  tools 
were  placed  in  the  same  bin  so  that  the  complete  stock  of  any 
tool  could  be  immediately  ascertained.  After  sufficient  data 
had  been  obtained  as  to  the  usage  of  the  different  types,  a 
minimum  limit  and  desirable  amount  to  order  was  placed  on  the 
bin  tag  and  the  stock  was  kept  within  these  limits  by  requisition 
on  the  tool  stock. 

Keeping  Track  of  the  Tools. — A  brass  check  system  was  in  use 
at  this  time  for  keeping  track  of  the  tools  that  were  out;  but  as 
there  were  two  turns  it  necessitated  turning  tools  out  and  in 
both  night  and  morning.  If  this  was  done,  there  was  constant 


TOOL  ISSUE 


51 


trouble  between  the  two  turns;  consequently  a  system  of  written 
slips  was  installed. 

This  operated  as  follows :  A  tool  list  was  written  in  triplicate 
for  all  tools  ordered  out,  one  list  remaining  in  the  crib,  while  the 
other  list  would  be  given  out — one  to  the  day  man  and  one  to  the 
night  man.  Then  if  the  tools  were  given  out  to  the  day  man, 
the  night  man,  when  he  came  in,  checked  over  the  tools  with  the 
list  given  him.  If  any  were  missing,  he  reported  the  fact  to  his 
foreman  for  adjustment.  If  he  did  not  report  it,  and  turned  in 
the  tools  later  with  one  missing,  a  charge  was  made  against  him. 

At  the  same  time  a  central  tool-grinding  department  was 
started  where  all  similar  tools  might  be  ground  the  same.  The 


Cost  before  Toot  Room 
was  organized. 

Cost  after  Tool  Room 
was  organized. 


Jan.  Feb.  Mar.  April  May  June  July   Aug.  Sept.  Oct.  Nov.  Dec. 
FIG.   18. — Chart  showing  saving  in  taps  and  drills. 

tools  in  the  crib  were  kept  ground,  and  when  a  man  had  a  dull 
tool,  he  turned  it  in  and  received  a  new  one.  This  not  only 
saved  time  but  assured  that  each  tool  was  so  ground  as  to  give 
the  best  possible  service. 

This  central  tool  department  also  maintained  a  stock  of  forged 


52        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

tools  on  a  minimum  and  desirable  amount  to  order  basis,  so 
when  requisitions  for  tools  came  in  they  were  filled  from  stock. 


B-l  -  Cosf  before  Tool  Room 

was  orqanized 

\IQ\- B-£=  Cost  after  Tool  Room 
was    rganized. 


Jan.  Feb.  Mar.  April  May  June  July  Aug.  Sept.  Oct.    Nov.  Dec. 
FIG.   19. — Chart  showing  saving  in  files  and  handles. 


This  tended  to  standardize  the  tools  used  and  tool  numbers  were 
placed  on  all  which  were  necessary. 

Keeping  Tools  in  Repair. — Worn-out  tools  were  returned  to 
this  department  and  it  was  decided  there  whether  or  not  they 


TOOL  ISSUE  53 

could  be  reforged  into  another  shape.  This  alone  effected  a 
saving  of  about  $152  a  month  in  scrap  tool  steel. 

The  chart,  Fig.  18,  shows  the  saving  made  in  taps  and  drills  in 
one  plant  by  making  only  elementary  betterments.  The  manage- 
ment was  so  afraid  of  red  tape  that  it  would  not  countenance  a 
really  modern  method  of  handling  tools.  But  even  with  the  rudi- 
mentary changes  made,  the  saving  in  the  one  item  of  taps  and 
drills  amounted  to  $180,  and  in  files  and  handles  $987,  in  one 
year.  The  latter  item  is  shown  graphically  in  Fig.  19. 

Formerly,  nearly  all  of  the  shop  tools  were  allowed  to  remain 
in  the  care  of  the  operatives  at  their  benches  or  machines.  Many 
workmen  accentuated  this  semi-ownership  by  keeping  the  tools 
under  personal  lock  and  key.  As  no  record  existed  showing 
what  tools  belonged  to  the  company,  it  was  a  very  common  occur- 
rence to  find  that  tools  had  vanished — where  to,  no  one  knew. 

In  an  effort  to  determine  where  these  tools  were  or  how  they 
had  been  disposed  of,  an  examination  of  every  operative's  tool 
stand  or  bench  drawer  was  made.  The  result  was  that  drills 
and  taps,  in  quantities  ranging  from  50  to  150  per  size,  were  found 
at  the  benches,1  The  majority  were  usable,  only  a  small 
expenditure  being  required  to  put  them  in  shape.  The  men  in 
the  shop,  when  questioned,  admitted  that  if  a  drill  or  tap  became 
damaged,  they  went  at  once  to  the  shop  office  for  another.  The 
assistant  foreman  would  give  the  tools  out;  even  suggesting — 
"better  take  two  or  three  and  you  won't  have  to  bother  me  again 
so  soon." 

Summed  up,  the  unnecessary  investment  and  subsequent  loss 
in  stolen,  mislaid,  idle  or  needlessly  discarded  tools  was  due  to 
the  common  carelessness  of  the  foreman  and  his  assistant. 

Centralizing  Tool  Storage. — The  first  step  was  to  centralize 
tool  storage  in  a  crib.  As  tools  are  taken  from  this  and  given  to 
the  workman  they  are  listed  on  a  standard  card,  and  filed  by  the 
man's  number  (in  a  3  by  5-in.  card  file)  in  the  toolroom. 

Drills  and  taps  were  given  out  only  upon  the  return  of  the 
shank  end  of  the  tool  originally  supplied.  Files  and  handles 
could  be  secured  only  by  returning  the  old  ones.  Bolts  and 
machine  screws  were  not  given  out  by  the  box  as  before;  but 
according  to  the  quantities  specified  on  the  bill  of  material. 
Additional  tools  were  issued  only  upon  presentation  of  a  tool 
check. 

All  locks  were  removed  from  bench  drawers  and  a  standard 


54        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

lock  used  throughout  the  shop.  Each  workman  was  given  his 
key,  a  master  key  fitting  all  locks  being  placed  on  the  key  board 
in  the  toolroom. 

A  Simple  Tool  System.— The  following  simple  tool  system 
indicates  a  routine  that  can  easily  be  adapted  to  nearly  any 
needs.  It  assures  economical  handling  of  tools. 

Briefly,  these  are  the  points: 

1.  Give  all  tools  a  number. 

2.  Classify  all  tools  as  jigs,  fixtures,  gages,  tools,  dies,  etc. 

3.  List  tools  needed  on  operations  for  every  part  manufactured,  showing 
the  tool  number,  name  and  size. 

4.  Arrange  the  tool  cage  into  sections,  each  section  to  be  divided  into 
bins  and  drawers  for  all  tools  and  gages. 

5.  Install  an  "in  and  out"  tool  cage  record  and  use  this  for  each  tool. 
It  is  a  card  which  shows  the  tool  number,  name,  location  in  the  tool  cage, 
what  part  it  is  used  for,  what  operation,  the  maximum  and  minimum  stock 
required  and  the  operator  who  has  the  tools  out,  with  his  name  and  number. 
Whenever  a  tool  is  used  or  broken,  it  is  entered  on  this  card,  thus  showing 
at  all  times  the  balance  on  hand. 

6.  Use  a  tool  requisition  for  the  issuing  of  all  tools,  showing  the  operator's 
name,  number,  department  in  which  he  works,  the  tool  name,  number, 
size  and  number  of  each  kind  needed. 

7.  Tools  to  be  repaired  to  be  entered  on  a  repair  order  in  triplicate  by  the 
man  in  charge  of  the  cage.     The  original  remains  in  the  cage,  the  duplicate 
goes  with  the  work  to  the  toolroom,  and  the  third  copy  is  sent  to  the  layout 
man  in  the  planning  department  for  his  planning.     Each  copy  shows  the 
tool  name,  number,  size,  nature  of  repair  and  when  wanted. 

Handling  Tool  Requisitions. — On  all  productive  operations 
the  tool  requisitions  are  handled  entirely  by  the  control  board 
operator,  in  the  central  planning  department.  On  all  other 
work  the  tool  requisitions  are  handled  by  the  foreman. 

The  tool  requisition  is  made  out  in  duplicate,  signed  by  the 
foreman  and  then  sent  to  the  tool  cage.  The  tool  cage  man  first 
sees  if  the  tools  are  in  by  looking  on  the  "in"  file  of  the  tool  cage 
record.  If  they  are  in  the  tool  cage,  he  enters  all  tools  called 
for  on  the  requisition  of  the  "in"  cards  and  places  the  cards  in 
the  "out"  file.  The  requisition  is  then  filled,  and  the  original 
is  filed  against  the  operator's  number  and  the  duplicate  sent 
with  the  tools  to  the  operator  so  that  he  can  check  the  tools. 

Filing  the  tool  requisition,  Fig.  20,  against  the  operator  insures 
that  he  will  return  all  tools  before  being  paid  off,  if  he  is  discharged 
or  quits,  as  the  tool  cage  man  must  sign  his  "tool  release  order" 
(shown  in  Fig.  21)  before  he  is  paid. 


TOOL  ISSUE 


55 


When  the  tools  are  returned  by  the  operator,  they  are  checked 
against  the  tool  requisition  to  see  that  all  the  tools  called  for  on 
the  requisition  are  returned.  They  are  then  sent  to  the  tool 
inspector  to  determine  their  condition. 


SHOP  SUPPLIES. 

Charge  Acct   ^~    /faffs                                     Dp,0     ?-    7"/9 

Sfocfe  Delivered  Only  on  rftw  Order, 

Store  Keeper: 
Please  deliver  the  following  Supplies  :— 

Amount                       Size 

MATERIAL 

Rai« 

Amount 

/     "7^f/'7     «r^*>t 

^x^^     O^t-^-^1 

$     L^f 

1  v  *>* 

To  be  used  for  the  following  purpose  :  — 

New  Work                   Repiin                    Operator 

NAME  OF  DEPARTMENT 

Smbol 

A 

//    Kta- 

.ar^/f 

NOTE:-Ma*e  a  cross  In  Block 

A/^^CX^CX*W< 

lolls  to  be  used. 

S                            Foreman. 

FIG.  20. — Tool  requisition. 


Tool  Release  Order 

*5  *}& 
Please  Release  Check  No,      •*  '  7    on  the  following:— 

No. 

SIZE 

ARTICLE 

BROKEN 

DAMAGED 

COST 

X 

X 

;±r" 

:  x 

It 

>/ 

NOTKt—  Mark  X  in  column  denoting  condition. 

Pate      7'   7-'  9                                         f 

It.  ?&e£S 

Deot. 

[SJ0           /V^ 

'                              Foreman—,; 

C                          Foreman-^ 

FIG.  21. — Tool  release  order. 


After  the  tool  inspector  approves  their  condition,  he  signs  the 
tool  requisition  and  turns  it  over  to  the  clerk  in  the  tool  cage 
who  enters  the  tools  returned  on  the  "out"  card  of  the  tool  cage 
record.  This  card  is  then  placed  in  the  "in"  file. 


56        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


In  any  shop  where  the  tools  to  be  used  for  an  operation  are 
specified  by  the  engineering  department,  it  is  well  to  have  a  copy 
of  the  parts  list  or  of  the  shop  order,  Fig.  22,  sent  to  the  toolroom. 
This  may  show  simply  the  tool  number,  as  does  the  one  illus- 


DATE   MOVED 

PRODUC 

rive  SERVICE  CA 

FORM    12t 
RD    ' 

""${1 

PIECES 
WANTED 

OPERATION 

Drill,  ream^fc 
&  cut  off. 

form 

ORDER   NO.                   LOT 

1718             1 

COMPLETED 

REJECTED 

5919 

CREDIT 

TOOL   NO. 

M-A-77 

OPER. 
1 

MACH.                                     DEPT. 

N°'493            Ma 

MOVE 

DATE 

™'AL 

P.  PRICE 

.0158 

TO  DEPT. 

M 

ELAPSED 
HOURS 

CHANGE 
MACH. 

TO  MACH. 

382 

V  -31-19 

HOURLY  HATE 

FIG.  22. — Job  ticket  giving  tool  set-up. 


MACH   NA 
MACH    NO 

fcMH 

NAME 

size 

SYMBOL 

LOCATION, 

<OWI«) 

„.,. 

TOOLS  CALLED  FOR  ON  THIS  LIST  MUST  BE  ISSUED  TOGETHER 

F-O-IW                                   TOOL  LIST 

FIG.  23. — Tool  list. 

trated.  Or  from  the  list  of  tools  needed  for  any  operation,  which 
is  on  file  in  the  toolroom,  the  proper  tools,  gages,  fixtures,  and 
instructions  are  collected  in  a  tray  and  sent  to  the  machine, 
ready  for  the  set-up  man.  Such  a  form  listing  the  tools  needed 
with  a  full  description  of  them  and  showing  their  location  is 
shown  in  Fig.  23. 


TOOL  ISSUE 


57 


To  prevent  the  shut-down  of  machines  due  to  breakage,  all 
tools  that  are  subject  to  easy  breakage  or  that  are  unusually 
delicate  are  furnished  in  duplicate. 

The  requisitions  for  tools,  etc.,  received  from  the  planning 
department  are  filed  in  the  tool  crib  against  the  man,  machine  or 
unit  to  which  they  were  sent.  When  the  tools  come  back  they 
are  checked  and  breakage  immediately  replaced  and  reported. 


FIG.  24. — Issuing  tools  in  boxes. 

Permanent  Sets  of  Tools. — Often  where  an  operation  repeats 
quite  frequently  it  is  well  to  have  permanent  sets  of  tools,  gages 
and  so  on  kept  in  boxes,  as  shown  in  Fig.  24.  Sometimes  dupli- 
cate boxes  are  advisable.  This  does  away  with  the  trouble  and 
time  taken  in  gathering  sets  together.  The  set-up  or  other 
instructions  may  be  pasted  to  the  inside  of  the  set-up  box  cover, 
or  as  in  this  instance  a  list  of  tools  like  that  shown  in  Fig.  25  may 
be  shellacked  to  the  bottom  of  the  box. 

A  Tool  Record  Form. — A  performance  record  of  various  tools 
is  not  hard  to  keep  and  frequently  will  point  the  way  to  consider- 


58        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

able  economies.     It  may  for  instance  indicate  a  saving  through 
purchasing  tool  steel  of  just  the  right  quality. 

Figure  26  shows  both  sides  of  such  a  card  record.     It  combines 


MODEL 


TOOLS    REQ'D 


FIG.  25.— Tools  required  list. 


FIG.  26. — Performance  record  form. 


TOOL  ISSUE  59 

a  record  of  the  location  of  the  tool  or  die  with  a  record  of  the 
production  obtained  from  it,  the  cost  of  making  the  tool  and  of 
repairs  that  become  necessary. 

While  such  a  record  is  of  particular  value  for  a  tool  which  is  in 
use  for  long  periods  at  a  time  it  may  well  be  used  for  any  tool 
which  is  expected  to  stand  up  under  quantity  production. 

Whatever  system  of  tool  issue  and  storage  may  seem  best 
adapted  to  a  given  shop,  it  should  be  designed: 

1.  To  prevent  theft  and  wasteful  usage; 

2.  To  keep  the  investment  in  tools  as  low  as  possible; 

3.  To  make  sure  that  lack  of  tools  does  not  delay  production; 

4.  To  show  just  where — in  or  out  of  the  toolroom — any  tool  is. 

A  system  that  does  these  things  will  surely  produce  worth  while 
savings. 


CHAPTER  VI 
LAYING  OUT  THE  MACHINES 

When  we  speak  of  production  planning  we  mean  the  planning 
of  each  individual  order  through  the  plant  so  that  every  part 
which  goes  into  a  finished  assembly  will  reach  the  assembly  floor 
in  proper  time  and  amount  to  allow  continuous,  uniform  ship- 
ments of  the  finished  product  to  leave  the  plant. 

Before  this  condition  can  be  achieved,  it  is  necessary  to 
lay  out  the  machines  which  will  be  used  in  the  best  sequence 
and  in  proper  balance.  If  the  machines  are  not  in  the  correct 
sequence,  there  will  be  unnecessary  trucking  and  probably 
snarled-up  production  due  to  congestion. 

Two  Ways  of  Grouping  Machine  Tools. — There  are  in  general 
two  ways  in  which  machine  tools  may  be  grouped.  The  old 
idea  was  to  have  all  machines  of  a  type  together;  that  is,  all 
lathes  in  the  same  department;  all  drill  presses  in  another; 
and  so  on.  In  shops  doing  entirely  special  work  to  order,  this 
"battery"  arrangement  is  frequently  the  most  economical,  but 
inasmuch  as  it  is  not  often  advisable  to  attempt  to  plan  that 
kind  of  work  definitely,  we  need  not  go  deeply  into  the  arrange- 
ment of  machines  under  this  plan. 

The  other  arrangement  consists  in  laying  out  machines  of 
various  types  as  nearly  in  a  straight  line  as  possible  and  in  the 
order  in  which  they  will  perform  their  operations  on  the  product. 
In  this  way,  we  will  have  approximately  a  department  or  unit 
of  machines  for  each  principal  part  of  the  product,  although,  of 
course,  it  is  often  possible  to  route  more  than  one  part  through  a 
given  department.  It  is  in  laying  out  the  machines  in  units 
that  greater  economies  may  be  effected. 

Straight  Line  Production. — It  is  commonplace  nowadays  to 
speak  of  straight  line  production.  The  advantages  to  be  gained 
from  progressive  production  in  as  near  a  straight  line  as  possible 
are  too  obvious  to  need  argument.  The  practical  obstacle 
often  comes  when,  in  a  plant,  the  same  machine  is  used  to  perform 
two  or  more  operations  between  which  other  operations  intervene. 
If  neither  of  these  operations  require  the  full  possible  capacity  of 

60 


LAYING  OUT  THE  MACHINES  61 

a  tool,  it  is  usually  most  economical  to  move  the  material  back 
to  the  machines  for  the  later  operation.  While  such  a  procedure 
breaks  into  the  ideal  straight  line  flow  of  material,  it  is  preferable 
to  purchasing  two  machines,  each  of  which  may  be  in  operation 
only  a  small  part  of  the  time. 

A  group  of  machines  comprising  a  unit  is  able  to  produce 
quantitatively  in  accordance  with  the  capacity  of  some  one 
machine  or  group  of  machines  of  a  type,  either  of  which  may  form 
the  minimum  or  restricting  point  in  manufacture  of  the  unit. 
This  point  is  best  known  in  shop  practice  as  the  "neck  of  the 
bottle."  It  therefore  becomes  necessary,  in  establishing  a 
machine  unit,  to  know  thoroughly  the  operations  that  are 
to  be  undertaken,  paticularly  with  respect  to  the  amount  of 
time  required  by  each  operation. 

Getting  the  Shop  in  Balance. — If,  for  instance,  the  work  going 
through  a  unit  differs  so  radically  that  on  some  parts  certain 
machines  are  not  used  at  all  but  are  standing  idle,  the  unit  is  apt 
to  be  an  unprofitable  form  of  manufacture.  Where,  however, 
the  parts  closely  resemble  one  another  and  the  variations  are  not 
considerable,  the  losses  of  time  resulting  from  such  variations 
are  generally  found  to  be  less  expensive  than  the  cost  of  handling 
and  carting  the  same  parts  from  battery  to  battery  in  the  old- 
fashioned  way. 

Before  a  unit  can  be  laid  out,  it  is  obviously  necessary  to  know 
accurately  the  time  required  by  each  machine  for  performing  its 
operations.  This  requires  careful  study  of  the  times  needed, 
by  thoroughly  trained  time  study  men.  In  one  plant  where  a 
planning  system  was  to  be  installed,  the  machines  were  already 
laid  out  on  the  unit  basis  for  progressive  manufacture.  Un- 
fortunately, however,  the  machines  had  been  selected  on  the 
basis  of  incorrect  time  studies.  This  was  true  in  all  departments. 
The  department  most  nearly  in  balance  was  that  turning  out 
camshafts.  Here  are  the  conditions  found  in  that  department: 

An  Example. — The  limiting  operation  in  making  camshafts 
was  the  first  polish.  By  maintaining  the  standard  of  output  to 
which  it  was  restricted  by  the  capacity  of  the  first  polish,  the 
unit  could  turn  out  about  360  camshafts  per  day.  Obviously, 
it  was  useless  for  the  other  units  to  produce  more  than  360  pieces 
per  day,  even  if  tooled  up  for  greater  production.  It  should  be 
apparent  that  if  only  360  camshafts  can  be  produced,  it  is  useless 
to  average  450  crankshafts,  520  cylinder  blocks  and  so  on. 


62        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

In  other  words,  every  unit  is  dependent  upon  all  other  units 
and  the  maximum  capacity  of  each  unit  is  only  as  great  as  the 
capacity  of  that  unit's  restricting  operation. 

Any  unnecessary  excess  equipment  is  merely  taking  up  space 
and  is  a  needless  investment  of  capital.  If  manned,  the  added 
equipment  adds  to  the  labor  cost.  To  many  readers  we  may 
seem  to  be  laying  unnecessary  emphasis  on  an  obvious  subject, 
but  experience  has  shown  that  more  plants  are  suffering  from 
under-production  solely  because  of  one  or  two  restricting  opera- 
tions than  for  any  other  reason.  If  of  all  machines  in  a  unit  but 
one  can  complete  500  operations  in  a  day,  but  that  one  machine 
can  complete  only  350,  then  that  unit,  despite  its  500-piece 
potentiality,  can  still  only  turn  out  350  pieces.  If  all  the  other 
units  turn  out  600  pieces  each,  it  is  still  possible  to  turn  out  only 
350  complete  assemblies  per  day  because  of  one  limiting  machine 
hidden  away  down  in  a  single  unit.  This  condition  is  not  un- 
usual. It  is  so  important  that  we  cannot  lay  too  much  stress 
upon  the  need  of  carefully  balancing  the  machines,  based  on 
accurate  time  studies,  before  any  attempt  is  made  at  further 
planning. 

Eliminating  the  "Bottle  Necks." — It  is  thus  apparent  that 
this  step  in  getting  greater  production  is  worthy  of  careful 
attention.  To  show  just  how  the  correct  balance  of  machines 
may  be  attained,  thus  eliminating  "  bottle  necks,"  we  will 
describe  the  methods  which  we  used  in  laying  out  the  machines 
for  the  Warner  Gear  Co.  This  plant,  while  equipped  with  the 
most  modern  machine  tools,  had  been  forced  to  expand  irregu- 
larly because  of  lack  of  proper  space.  The  work  in  planning  the 
production  was  coincident  with  the  erection  of  new  factory  build- 
ings, which  enabled  us  at  least  to  approximate  the  best  layout. 

At  the  very  first,  it  was  decided  to  group  the  machines  as 
nearly  progressively  as  possible  in  order  to  keep  down  the  truck- 
ing expense  and  also  to  avoid  the  trouble  which  existed  in  many 
places  because  operations  which  depended  upon  each  other  were 
so  far  apart. 

In  order  to  place  these  departments  so  that  there  would  not 
be  an  over-abundance  of  one  kind  of  machine  and  at  the  same 
time  a  shortage  of  another,  it  was  necessary  first  to  determine 
the  total  volume  of  production  of  which  the  shop  was  capable, 
and  then  to  lay  out  the  shop  accordingly,  utilizing  the  existing 
machine  tools  as  a  nucleus. 


LAYING  OUT  THE  MACHINES 


63 


The  executives  gave  us  figures  for  the  estimated  production  of 
all  types  of  gears,  transmissions,  differentials,  controls,  clutches 
and  so  on.  This  information  enabled  us  to  lay  out  the  shop  so 
that  it  would  be  fitted  to  accept 
orders  on  those  products  in  the 
quantities  which  it  was  expected 
would  be  sold. 

A  chart  was  then  drawn  up  of 
the  assemblies  which  it  was 
decided  to  manufacture,  to  show 
the  individual  parts  going  into 
each.  With  this  we  were  able 
to  group  these  parts  which  were 
standard,  and  determine  which 
standard  ones  were  used  in  more 
than  one  assembly.  This  showed 
the  quantity  of  parts  needed  to 
meet  the  maximum  production 
and  was  the  basis  on  which  was 
worked  up  the  "load"  of  the 
various  departments. 

For  each  part  a  routing  was 
drawn  up  showing  the  operations 
in  the  correct  order.  The  sheet 
on  which  these  data  were  col- 
lected is  shown  in  Fig.  27.  Due 
to  the  fact  that  the  time  studies 
did  not  show  the  types  of 
machines  on  which  the  jobs  were 
run,  it  was  necessary  to  call  in 
the  foremen  of  the  various  de- 
partments and  get  their  advice 
as  to  the  kind  of  machine  which 
was  to  be  used  for  each  opera- 
tion. At  the  same  time,  the  operation  times  were  reduced  to 
tenths  of  an  hour  and  all  of  this  information  was  put  under  the 
new  routing  form,  Fig.  27. 

By  this  time  an  accurate  knowledge  was  had  of  the  product 
and  the  plant,  and  we  proceeded  to  lay  out  the  departments 
tentatively.  We  then  sorted  the  routings  into  these  depart- 
ments, keeping  work  with  a  similar  sequence  of  operations  in  one 


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64        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

department.  In  this  way  were  classified  most  of  the  parts,  a 
few  only  being  left  which  did  not  seem  to  fit  any  of  the  depart- 
ments. These  were  reserved  until  the  final  layout  was  made  and 
then  distributed  to  the  various  departments  to  the  best  possible 
advantage. 

Laying  Out  the  Machines. — Inasmuch  as  this  method  is  of  the 
cut  and  try  kind,  it  was  necessary  to  sort  the  routings  into 
departments  several  times  before  a  completely  satisfactory  layout 
was  obtained.  That  which  finally  evolved  was: 

1.  The  shaft  department,  consisting  of  screw  machines,  turret  lathes,  lo- 
swing  lathes,  engine  lathes,  light  drill  presses  and  milling  machines.     Solid 
gears  were  made  in  this  department;  that  is,  gears  on  a  shaft  throw-out, 
steering  gear  tubing  and  so  on. 

2.  The  spur  gear  blank  department,  consisting  of  high  power  drill  presses, 
chuck  type  turret  lathes,  plug  type  turret  lathes,  broaching  and  keyseating 
machines.     In  it  were  made  only  the  gears  with  holes  in  them. 

3.  The  retainer  department,  very  similar  to  the  shaft  department  as  to 
machines,  but  in  which  were  manufactured  retainers,  differential  and  steer- 
ing gear  cases  and  small  hand-screw  machine  work. 

4.  The  bevel  gear  blank  department,  consisting  largely  of  heavy  turret 
lathes  and  semi-automatics,  made  bevel  ring  gears  and  clutch-driven  drums. 

5.  The  control  lever  department  composed  largely  of  milling  machines  and 
drill  presses,  handled  control  and  brake  levers  and  all  of  that  class  of  parts 
that  required  only  milling  and  drilling  operations. 

6.  The  transmission  case  department  was  already  lined  up  more  or  less 
progressively.     We   rearranged   the   machines,    however,    into    an   actual 
progressive  line  up. 

7.  The  gear  cutting  department,  automatics,  grinding  machines,  enamel- 
ing, assembly  and  stock  rooms  were  left  intact  with  the  exception  that  they 
were  all  arranged  so  that  the  work  might  flow  through  more  smoothly  and 
evenly. 

A  Card  Record  of  Machines. — Next  a  complete  card  index  was 
built  up  of  every  machine  tool  in  the  plant.  As  a  rule,  it  is  not 
safe  to  take  any  existing  records  as  to  what  machine  tools  are  in 
the  plant,  as  these  records  seldom  check,  because  of  unauthor- 
ized moving  from  department  to  department.  We  therefore  rec- 
ommended that  an  accurate,  physical  count  be  made.  A  3  by 
5-in.  card  was  made  up  for  each  machine;  also  a  card  for  each 
type  of  machine.  On  the  card  for  the  individual  machine  is  shown 
the  standard  name  of  the  machine,  its  capacity,  maker,  the 
floor  space  required  and  any  special  features  that  require  it 
to  be  kept  for  certain  jobs. 

In  the  mean  time,  we  had  rough  forms  like  that  shown  in  Fig. 
28  printed  on  a  duplicating  machine.  One  of  these  forms  was 


LAYING  OUT  THE  MACHINES 


65 


used  for  each  department.  From  the  routings  we  listed  on  the 
forms  each  machine  in  its  correct  order  and  under  each  machine 
we  listed  all  of  the  parts  which  had  operations  performed  on  that 
machine.  Also  opposite  each  part  was  listed  the  number  of 


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FIG.  28. — Form  for  listing  work  of  each  machine, 

operations  performed  on  it  by  that  machine,  the  time  of  the 
operation,  the  weekly  production  which  had  already  been  deter- 
mined as  desired,  and  the  machine  hours  needed  to  attain  that 
production.  If  a  part  had  more  than  one  operation  on  the  same 
type  of  machine,  physically  widely  separated,  these  items  were 


66        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


entered  separately,  as  at  this  point  it  was  impossible  to  tell 
whether  or  not  certain  work  could  double  back.  The  totals  of 
these  machine  hours  showed  us  the  total  time  necessary  for 


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FIG.  29. — Form  showing  total  work  of  machines  in  department. 

each  type  of  machine  to  turn  out  the  estimated  weekly  production. 
This  process  of  course  was  gone  through  for  each  department. 

Distributing  the  Existing  Equipment. — We  were  now  in  a 
position  to  distribute  the  existing  equipment  over  the  new  depart- 
ments. To  do  this  a  file  was  used  having  separate  compartments, 


LAYING  OUT  THE  MACHINES  67 

one  compartment  for  each  department.  Into  these  compart- 
ments were  sorted  the  cards  for  the  individual  machines.  This 
showed  which  machines  would  be  in  each  department  in  accord- 
ance with  Fig.  28,  and  removed  the  chance  of  assigning  the  same 
machine  to  more  than  one  department. 

We  found  before  finishing  this  distribution  of  machines 
that  there  was  going  to  be  a  shortage  of  equipment  needed 
to  come  up  to  the  estimated  production.  We  figured  the  per 
cent  increase  in  each  type  of  machine  needed  and  from  these 
figures  made  another  estimate  as  to  the  per  cent  which  production 
would  have  to  be  reduced  in  order  to  make  the  possible  and 
estimated  productions  equal. 

We  then  went  through  the  sheets  and  recopied  them,  with 
the  weekly  production  reduced  by  the  estimated  percentage. 
The  time  required  for  this  production  was  refigured  and  the 
machines  redistributed.  On  this  attempt  the  machine  tools 
worked  out  very  nearly  correctly.  A  few  shortages  still  existed 
for  which  additional  machines  were  purchased  to  bring  each 
department  into  the  needed  balance. 

Listing  the  Machines. — Another  list,  Fig.  29,  was  now  drawn 
up  for  each  department,  showing  the  machines  in  that  depart- 
ment in  their  correct  order,  how  many  of  each  type  of  machine 
was  required,  and  actual  machine  hours  available  and  the  ma- 
chine hours  needed  to  reach  the  estimated  production.  Occasion- 
ally the  same  type  of  machine  was  required  at  two  or  more  places 
in  a  department.  If  the  total  time  required  by  both  operations 
was  less  than  that  furnished  by  one  machine,  the  requirements 
were  combined,  it  being  better  to  allow  that  part  of  the  work  to 
double  back  at  some  time  in  its  course  than  to  purchase  an  addi- 
tional machine,  a  large  part  of  whose  time  would  be  wasted. 
Where  this  was  necessary,  the  machine  which  doubled  up  on 
operations  was  placed  at  a  point  most  convenient  for  both. 

A  Layout  in  Miniature. — At  this  point  we  knew  the  number  and 
type  of  machines  needed  to  attain  the  given  production  and  the 
order  in  which  it  was  desirable  that  they  be  laid  out. 

We  now  obtained  an  accurate  floor  plan  of  the  plant,  on  which 
we  laid  small  pieces  of  cardboard  cut  to  scale  to  represent  the  floor 
space  taken  by  machines.  They  were  arranged  in  the  order 
already  determined. 

We  called  upon  all  foremen  who  were  interested  and  who  were 
in  a  position  to  give  criticism  to  go  over  the  layout,  and  after 


68        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

everybody  was  satisfied  the  prints  were  turned  over  to  the  mill- 
wright department  to  guide  it  in  moving  and  placing  the  machines. 

In  making  the  final  layout  it  is  absolutely  necessary  that  the 
floor  plan  be  accurate  and  sufficiently  in  detail.  It  must  show 
everything  which  could  possibly  affect  in  any  way  the  placing 
of  the  machines.  For  instance,  in  one  case  we  found  that  a 
ventilator  operating  device  not  shown  on  the  plans  was  so  located 
on  a  column  that  were  the  machine  located  as  planned  it  would 
be  inaccessible  to  the  operator.  This  frequently  happens  with 
switches,  panel  boxes  for  the  lighting  systems  and  so  on.  Even 
a  drain  pipe  may  cause  a  machine  to  be  set  out  a  little  farther 
than  expected. 

If  these  points  are  not  known  beforehand  and  the  solution  for 
the  difficulties  are  left  to  the  men  who  place  the  machines,  they 
are  more  than  apt  to  take  liberties  with  other  machines  which 
should  be  placed  absolutely  as  indicated.  In  this  particular 
instance,  this  happened  when  the  millwrights  allowed  a  trifle  too 
much  space  between  the  machines  which  resulted  in  our  being 
unable  to  place  the  last  machine  in  the  row. 

If  changes  in  the  layout  are  needed  they  should  be  dated  and 
the  attention  of  all  concerned  called  to  the  changes.  The  layout 
blueprint  should  not  only  be  to  scale,  but  all  possible  dimensions 
should  be  shown.  This  facilitates  the  placing  of  the  machines, 
as  generally  the  men  who  do  the  moving  are  inexperienced  in 
reading  even  the  most  simple  blueprints.  We  have  even  found 
it  well  to  go  to  the  expense  of  laying  out  the  exact  location  of  each 
machine  on  the  floor  itself  with  paint  or  chalk.  Even  after 
doing  this  it  is  necessary  to  watch  the  millwright  gangs  closely 
to  see  that  they  place  the  machines  properly. 

Plans  Seldom  Go  Smoothly. — It  would  seem  that  so  carefully 
worked  out,  the  plan  would  enable  the  placing  of  the  machines  in 
the  new  departments  to  go  smoothly.  It  seldom  does,  however, 
for  even  though  the  foremen  are  called  into  conference  in  the  first 
place  there  are  a  lot  of  things  that  they  do  not  remember  or 
visualize  until  the  physical  move  is  being  made. 

Although  when  we  made  up  our  index  of  machines  we  had 
placed  against  each  one  all  of  the  special  information  concerning 
it,  we  would  find  the  foremen  later  thought  of  lots  of  other  tricks 
they  had  forgotten  and  which  forced  us  to  use  different  machines 
from  the  ones  we  had  already  picked  out.  Usually,  however, 
this  will  not  affect  the  layout  at  all,  as  the  machine  the  foreman 


LAYING  OUT  THE  MACHINES  69 

wants  can  usually  be  substituted  for  the  machine  reserved  for 
the  space.  Such  changes  at  a  late  hour,  however,  do  cause 
considerable  confusion.  Great  care  in  collecting  information 
on  all  of  the  uses  of  each  machine  will  well  repay  the  effort. 

The  Importance  of  Balance. — It  is  our  opinion  that  the  plant 
equipped  with  more  or  less  antiquated  machines  which  are, 
however,  carefully  balanced  and  laid  out,  is  more  likely  to  get 
economical  production  than  another  plant  equipped  with  the 
very  latest  in  machine  tools  but  whose  units  are  hampered  by 
"bottle  necks." 

In  a  single  plant  manufacturing  gasoline  motors,  for  which  we 
installed  a  planning  system,  the  goods  in  process  inventory  was 
reduced  from  $3,000,000  to  $1,000,000  in  spite  of  increased  sales. 
This  saving  was  at  least  50  per  cent  due  to  balancing  the  ma- 
chines. The  high  " goods  in  process"  inventory  had  been  caused 
by  the  large  number  of  parts  lying  around  the  plant  waiting 
for  other  needed  parts  which  were  being  held  up,  due  to  a  single 
machine  restricting  the  capacity  of  a  unit  as  a  whole.  What  is 
the  use  of  offering  wage  incentives  to  the  workmen  to  increase 
their  production  and  getting  this  increased  production  when  the 
parts  which  are  made  cannot  be  put  into  an  assembly  because 
it  is  physically  impossible  to  turn  out  the  required  number  of 
other  parts  on  the  existing  equipment? 


CHAPTER  VII 
THE  CENTRAL  CONTROL  OF  PRODUCTION 

In  the  first  chapter  it  was  stated  that  there  were  two  main 
phases  to  planning  production;  the  preliminary  building  of  a 
smooth  road  to  facilitate  the  later  movement  of  work;  and  the 
day  by  day  planning  by  means  of  which  the  individual  parts  of 
an  order  are  made  to  move  regularly  down  this  road. 

We  have  completed  the  discussion  of  the  preliminary  work 
and  are  now  ready  to  see  how  a  specific  order  is  handled  in  the 
office  and  shop.  We  have  seen  in  the  foregoing  chapters: 

1.  How  purchasing  is  handled. 

2.  How  stock  is  kept  and  controlled. 

3.  How  the  product  is  engineered. 

4.  How  tools  are  provided  and  kept. 

5.  How  the  shop  is  put  into  balance. 

The  movement  of  work  in  an  unplanned  shop  is  always  a 
reminder  of  a  disorderly  mob,  lunging  first  one  way  and  then 
another  way,  without  precision  or  apparent  aim.  The  purpose 
of  planning  is,  of  course,  to  get  the  work  to  move  smoothly  and 
regularly  in  a  definite  direction  and  at  an  even  speed.  Hence  the 
first  step  is  to  organize  the  mob  of  parts  into  an  army,  comprising 
units  of  a  definite  size.  That  is,  we  divide  all  work  up  into  lots 
and  combine  the  lots  into  series. 

The  size  of  a  lot  must  be  settled  for  each  part.  The  general 
rule  is  to  make  the  lot  of  such  size  that  it  can  go  through  the 
average  operation  in  not  more  than  1  day.  This  must  be  tem- 
pered by  the  size  and  weight  of  the  part,  for  the  lot  should 
travel  as  one  piece  and  it  should  take  a  great  emergency  to 
warrant  splitting  it. 

Designing  Trucks  to  Help  Production. — In  order  that  each 
lot  may  easily  be  moved  as  a  unit,  it  is  well  to  design  the  trucks 
so  that  each  will  hold  one  complete  lot.  In  the  plant  of  the 
Warner  Gear  Co,  for  instance,  it  was  possible  to  design  three 
styles  of  trucks  which  handle  90  per  cent  of  the  parts.  All 
three  types  are  of  wood,  mounted  on  casters  and  so  constructed 
that  for  long  moves  they  may  be  picked  up  and  carried  by  an 

70 


THE  CENTRAL  CONTROL  OF  PRODUCTION 


71 


electric  lift  truck.  Each  has  a  receptacle  for  the  traveller 
form. 

The  dimensions  of  all  three  trucks  are  the  same — 26  by  36  in. 
and  44  in.  high.  In  one  truck  a  series  of  holes  is  provided  to  hold 
such  parts  as  shafts  with  gears  attached;  another  is  provided  with 
pegs  upon  which  gears  with  holes  can  be  hung;  another  consists 
only  of  shelves  to  hold  such  pieces  as  straight  shafts,  levers  and 
so  on. 

To  see  how  the  work  is  scheduled  and  controlled  from  the 
central  planning  office,  let  us  follow  the  course  of  an  order  from 


WCCo.  MD216  IM 

ORDER  AND  SHIPMENT  RECORD 


MODEL  '£>  *J~t 


DATE   ORDER  NO 


®£ 


1  Cacti 


ORDERED 


Icccc 


TOTAL  DUE   MO. 


FIG.  30. — Order  and  shipment  record. 

the  time  the  sales  department  gets  it.  We  have  seen  in  Chap. 
IV  how  the  engineering  department  notifies  the  production 
department  on  Fig.  15,  the  parts  list,  what  parts  must  be  made 
for  any  assembly. 

How  Work  Is  Controlled. — This  form  with  the  sales  order, 
which  gives  the  delivery  specifications,  serves  as  the  basis  for 
planning  the  work  by  the  central  planning  department. 

Our  example  is  taken  from  a  highly  complete  planning  system 
in  a  shop  which  has,  under  normal  circumstances,  the  advantage 
of  knowing  what  to  make  and  deliveries  specified  for  at  least  3 
months  in  advance  of  delivery.  When  delivery  cannot  be  ascer- 


72        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

tained  from  customers'  specifications,  it  becomes  a  function  of 
the  general  manager  and  sales  manager  to  release  for  manu- 
facture a  sufficient  quantity  of  product  to  keep  the  shop  up  to  any 
capacity  which  has  been  previously  decided  upon. 

The  planning  department  then  goes  ahead  as  if  this  release 
were  a  real  sales  order.  The  planning  department  now  posts 
the  story  as  shown  by  the  sales  order  onto  the  "  order  and  ship- 
ment record,"  Fig.  30,  this  record  being  headed  with  the  name  of 
the  customer  and  the  name  of  the  model  which  he  is  purchasing. 
This  form  is  self-explanatory,  it  is  simply  a  bird's-eye  view  of  the 
obligations  to  the  customer  and  how  well  these  obligations  are 
being  met. 

The  "Production  Man's  Bible." — We  are  now  ready  to  post — 
guided,  of  course,  by  the  bill  of  material — to  the  "  production 
stock  and  demand  record,"  which  was  shown  as  Fig.  12  in  Chap. 
III.  This  form  is  truly  the  "  production  man's  bible."  We 
mentioned  this  form  rather  casually  when  discussing  stock  keep- 
ing. A  careful  study  of  it  will  now  be  well  worth  the  reader's  time. 

This  record  provides  a  sheet  for  each  part.  It  is  a  compre- 
hensive picture  of  the  condition  at  any  time  of  each  item  of 
raw  material  needed,  for  it  shows  not  only  what  is  needed,  but 
how  fast  the  stock  comes  in  and  exactly  how  much  stock  is  in  the 
pl#nt  at  any  time,  after  considering  receipts,  shipments,  reclaimed 
spoilage  and  all. 

One  of  the  difficulties  in  planning  production  comes  from  lack 
of  knowledge  concerning  the  disposition  of  rejected  pieces,  that 
is,  pieces  which  either  may  have  to  be  scrapped,  or  may  be 
reclaimed  by  re-operation.  This  may  cause  over-production, 
over-purchasing  and  trouble  in  assembling,  due  to  pieces  delayed 
in  passing  through  the  plant. 

As  the  production  department  posts  on  this  record  the  delivery 
specifications,  it  notes  on  the  parts  list,  Fig.  15,  against  each  part, 
the  standing  of  the  stock  available  for  that  order.  One  copy  of 
the  parts  list  goes  to  the  purchasing  department,  which  contracts 
for  the  required  material,  the  delivery  dates  to  be  specified  later. 

Let  us  assume  that  an  order  for,  say,  10,000  transmissions 
comes  in  April  and  that  the  first  delivery  date  is  in  July.  We 
have  seen  that  certain  parts  of  the  assembly  will  have  to  be  put 
into  manufacture  at  an  earlier  date  than  others. 

Assuring  Simultaneous  Arrival. — Why  not  start  all  the  parts  on 
the  same  day?  Because  that  would  tie  up  needlessly  a  large 


THE  CENTRAL  CONTROL  OF  PRODUCTION  73 

amount  of  capital  in  work  in  process  and  finished  stores.  To 
avoid  this  we  must  determine  the  date  on  which  we  should  start 
to  manufacture  the  various  parts  to  insure  their  simultaneous 
arrival  on  the  assembly  floor.  This  is  one  of  the  most  important 
parts  of  planning.  Otherwise  production  must  be  started  from 
assembly  floor  shortages.  Unless  the  need  for  each  part  at  a 
certain  time  is  foreseen,  the  production  man's  time  each  day  is 
occupied  in  straightening  out  the  trouble  he  got  into  yesterday. 
It  is  not  only  easier,  but  cheaper  and  better  all  around  to  look 
ahead  and  avoid  production  troubles  before  they  come. 

If  this  order  were  the  only  order  in  the  plant,  scheduling  it 
would  not  be  so  complicated.  But  as  a  rule  it  is  necessary  to 
sandwich  an  order  in  between  several  other  orders  from  other 
customers  for  the  same  and  different  models,  which  are  already 
in  the  shop. 

Now,  no  manufacturer  likes  to  receive  his  shipments  all  on  the 
first  day,  nor  yet  all  on  the  last  day  of  the  month. 

The  automobile  manufacturer  especially  prefers  to  have  his 
transmissions  come  to  him  a  few  at  a  time,  scattered  evenly 
throughout  the  month.  To  oblige  the  customer,  the  production 
of  transmissions  must  be  so  planned  that  at  certain  intervals 
there  will  appear  in  finished  stock  enough  parts  to  enable  the 
assembly  room  to  maintain  an  even  production,  thus  making  it 
possible  to  ship  each  customer  at  frequent  intervals,  a  carefully 
graded  proportion  of  his  order. 

To  do  this,  the  planning  department  groups  all  of  the  sales 
orders  for  that  particular  model  that  are  due  for  delivery  in  a 
given  month,  and  divides  the  total  so  that  a  certain  quantity 
will  come  through,  say,  every  5  days.  Thus,  if  all  told,  2,500 
transmissions  must  be  shipped  during  the  month,  it  is  necessary 
to  make  500  of  them  every  5  working  days. 

Assembly  Schedule  Analysis. — A  better  idea  of  this  can  be 
obtained  by  looking  at  the  " assembly  schedule  analysis,"  Fig.  31, 
which  shows  the  quantity  to  start,  including  a  reasonable  allow- 
ance for  spoilage.  At  the  right  of  this  sheet  are  columns  indica- 
ting the  dates  of  delivery  to  the  finished  stores.  The  different 
models  are  so  grouped  that  the  totals  may  be  easily  obtained. 
Since  we  are  concerned  now  solely  with  manufacturing  we  do  not 
care  to  which  particular  customer  any  given  model  is  going.  All 
we  need  to  know  is  the  total  number  to  be  built  and  the  dates  on 
which  a  given  quantity  will  be  required. 


74        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

After  deciding  to  make  a  total  of  2,500  transmissions  of  a  given 
model,  500  of  which  are  destined  for  our  assumed  sales  order,  let 
dates  be  assigned  on  which  delivery  is  to  be  made  to  finished 
stock  as  follows:  July  2,  8,  13,  19  and  25.  . 

This  covers  the  transmission  as  a  whole.  However,  the  trans- 
mission is  not  one  single  part,  but  an  assembly  of  many  parts. 
It  is  therefore  necessary  to  analyze  the  assembly  into  its 
component  parts  and  get  a  record  of  the  number  of  parts  which 


T**T     &*»*> 


FIG.  32. — Parts-schedule  analysis. 

must  be  delivered  to  finished  stock  on  certain  dates  in  order  to 
live  up  to  the  assembly  schedule.  That  is  done  on  Fig.  32,  the 
" parts  schedule  analysis."  This  sheet  carries  the  following:  In 
the  first  or  left  hand  column,  the  assembly  number;  in  the  next 
column,  the  part  number;  and  in  the  next,  the  number  of  pieces 
per  assembly.  The  dates  heading  the  columns  at  the  right 
correspond  to  the  dates  on  the  assembly  schedule  analysis  on 
which  the  transmission  as  a  whole  is  desired.  This  indicates 
the  finishing  dates  of  the  various  parts  necessary  for  the  complete 
assembly.  The  number  due  on  any  date  is  known  as  a  series. 
That  gives,  for  instance,  five  series  for  completion  during  July, 
and  the  planning  department  is  responsible  for  seeing  that  these 
five  series  come  through  in  July. 

From  these  finishing  points,  the  planning  department  must 
look  backward  and  determine  the  starting  dates  for  each  part. 
This  is  done  by  means  of  a  graphic  schedule  control  chart,  Fig. 
33,  which  is  the  master  record  to  the  entire  planning  of  production 
system. 

It  is  in  graphic  form  so  that  the  works  manager  can,  day  by 
day,  check  the  entire  work  of  the  manufacturing  departments 
and  quickly  see  that  their  obligations  are  being  met.  It  is  futile 
to  find  fault  after  the  delivery  date  is  passed. 

Such  a  chart  can  be  made  up  in  many  ways  and  of  many 
materials.  It  is  preferably  prepared  on  a  thin  vellum  cross- 


THE  CENTRAL  CONTROL  OF  PRODUCTION 


75 


76        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

section  paper  from  which  blueprints  can  be  made,  for  the  reason 
that  in  this  way  a  master  graph  can  be  made  from  which  as  many 
copies  can  be  produced  as  there  are  series. 

There  is  one  schedule  control  graph  for  each  series:  it  is  there- 
fore possible  to  have  as  many  as  10  or  more  schedule  control 
graphs  on  a  given  model.  The  blue-printed  graphs  are  mounted 
upon  display  racks,  which  are  made  of  some  material  into  which 
a  pin  can  be  easily  stuck  and  are  so  hung  that  they  can  be  opened 
like  the  leaves  of  a  book.  All  the  graphs  for  one  model  are  kept 
together  with  the  series  number  and  date  due  at  assembly  on  the 
edge  of  the  board. 

At  the  right-hand  edge  of  the  sheet,  is  a  vertical  line  which 
represents  the  date  on  which  the  parts  are  to  reach  the  finished 
stores.  Each  division  represents  an  hour,  then  since  this  plant 
has  the  10-hour  day,  10  divisions  cover  one  day. 

The  heavy,  horizontal  black  lines  are  drawn  to  separate  the 
part  numbers  which,  together  with  the  number  of  pieces  in  a  lot, 
are  indicated  in  the  right-hand  column. 

At  the  top  of  this  sheet  is  shown  part  D  41-1  and  2,  the  latter 
being  a  sub-assembly.  Part  D  41-1  travels  as  a  separate  part 
until  it  has  been  through  10  operations  where  it  meets  part  D 
41-2  at  its  sixth  operation.  The  two  are  then  assembled  and 
travel  together  through  nine  operations. 

To  make  the  graph  for  this  part,  the  planning  man  turns  to  his 
production  routing  sheet  which  is  shown  as  Fig.  34.  The  ninth 
operation  on  the  sub-assembly,  "  drill  idler,"  takes  0.5  hours  for 
10  pieces.  A  lot  of  50  pieces  therefore  takes  2.5  hours  for  opera- 
tion 9.  There  are  500  pieces  or  10  lots  to  a  series  which  means 
that  25  hours  are  needed  to  complete  a  series.  The  man  who 
makes  up  the  graph  therefore  lays  off  25  divisions  to  the  left  of 
the  finish  line  which  he  divides  into  10  segments  of  2J  divisions 
each  to  indicate  the  10  lots.  Since  these  lots  follow  each  other 
without  a  break  there  is  no  gap  needed  between  lots.  Bear  in 
mind  that  though  lots  physically  travel  separately  they  do  not 
require  separate  setups. 

More  about  the  Analysis. — But  obviously  this  part  cannot 
start  on  operation  9  the  instant  it  completes  operation  8.  A 
certain  gap  must  be  allowed  for  trucking  and  sometimes  for 
inspection.  This  gap  between  operations  depends  largely  upon 
whether  the  planning  is  to  limited  production  or  to  capacity. 
If  to  production,  the  gap  should  be  made  the  irreducible  mini- 


THE  CENTRAL  CONTROL  OF  PRODUCTION 


77 


mum ;  if  to  capacity,  it  should  be  as  large  as  the  treasurer  of  the 
company  will  allow,  basing  his  limit  on  the  allowable  amount  of 
money  which  may  be  tied  up  in  goods  in  process  account.  For 
it  is  quite  obvious  that  the  longer  the  gap  the  more  work  there 
will  be  between  operations  and  therefore,  the  greater  will  be  the 
shock  absorber  to  take  up  the  jolts  caused  by  machine  break- 
downs, unexpected  shortage  of  labor  and  other  emergencies.  On 
an  average,  we  allow  at  least  6  hours  between  the  finishing  of  a 
lot  on  the  following  operation. 

Now  the  eighth  operation  on  part  D  41-1  and  2  is  longer  than 
the  ninth.     If  we  start  the  ninth  operation  on  the  first  lot  6 


Production  Routing  Sheet                    ?'n  N°-  -°  «"  -'  "* 

Date          ^ 

SPRCUL  TOOLS 

Oj. 

OPERATION   NAMK 

DEPT. 

MACHINE  No. 

PRICE 

T^T 

i^rTc 

OU 

N.. 

S«.up 

Pice. 

/ 

V7_              f 

0.V 

o.-f 

3 

ftr 

6.1 

V 

f 

33*,^    2i~,.r  S/.^ms 

cy 

M-9'f 

ti 

O.I 
tt.r 

I 

Cvx'~r      .. 

cy 

*/~-/7  -*/-/• 

o.f 

O.2. 

7 

^^Mtt  ^m^. 

c* 

Itt  -in  •-<>•• 

e.9 

o.¥ 

y 

/=-**m    3-0*.*^ 

c* 

>->v-  »/^- 

*•¥ 

/., 

I 

JZ?>r/<.«-  J-*,*.*^ 

CY 

£/-  7?  -•*'-'«•/ 

O.Xf 

o.f 

fO 

O/ 

• 

FIG.  34. — Production  routing-sheet. 


hours  after  the  eighth  operation  on  that  lot  is  finished,  the  ninth 
operation  will  shortly  be  out  of  work.  Therefore  we  lay  out  the 
schedule  so  that  the  ninth  operation  on  the  last  lot  will  start  6 
hours  after  the  eighth  operation  has  been  completed  on  all  the 
lots  and  work  back. 

The  seventh  operation  is,  however,  a  shorter  one  than  the 
eighth  so  the  6  hours'  gap  comes  after  the  seventh  operation 
has  been  completed  on  the  first  lot.  This  is  all  plain  from  the 
graph.  In  the  same  way  we  lay  out,  working  backward,  the 
time  needed  to  perform  all  operations  on  a  part  until  finally  we 
determine  the  exact  time  the  first  operation  must  be  started  on 
each  part  to  get  all  parts  done  at  the  same  time.  The  figures 
C4  above  each  operation  show  the  department  which  performs 
the  operation.  The  numbers  1  to  9,  etc.  are  the  operation 
numbers. 


78        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

By  fastening  to  the  top  of  the  graph  a  strip  showing  dates 
based  on  10  divisions  to  the  day,  we  determine  the  exact  time 
and  date  for  starting  each  operation. 

Near  the  left-hand  edge  of  the  sheet,  a  line  of  arbitrary  length 
is  drawn  for  each  part  and  is  divided  into  spaces,  indicative  of 
the  number  of  lots  to  be  run  on  that  part.  This  last  phase  of 
the  schedule  control  indicates  the  standing  of  the  rough  stock 
on  each  of  the  various  parts  shown.  Sometimes  it  is  desirable 
to  make  up  departmental  control-graphs  from  the  master,  for  the 
booth  men  in  the  various  departments.  This  is  seldom  neces- 
sary however,  especially  if  the  machine  schedule  described  later 
is  used. 

A  Flexible  Guide  for  Production. — The  schedule  control 
should  not  be  looked  upon  as  something  hard  and  fixed,  but 
rather  as  a  flexible  guide  for  production.  It  is  an  ideal  from 
which  we  may  stray,  now  and  then,  but  which  so  often  as  we  do 
stray,  brings  us  back  to  the  straight  path  immediately.  Farther 
on  in  this  chapter  will  be  shown  how  production  is  followed  and 
kept  in  balance  by  use  of  the  schedule  control.  We  want,  now, 
to  impress  the  fact  that  the  schedule -control  graph  indicates  the 
last  possible  dates  on  which  the  parts  may  be  started  and  brought 
through  economically.  We  assume  of  course  that  the  shop  is  in 
balance  and  that  the  machine  tools  are  all  loaded. 

The  Machine  Load. — The  next  step  is  to  develop  the  machine 
load,  Fig.  35,  (page  86)  from  the  schedule  control.  The  machine 
load  is  built  up  to  give  the  management  a  guide  to  hiring  men,  sell- 
ing the  product  and,  to  a  certain  extent,  in  following  up  purchased 
material.  The  most  important  function  is  as  a  guide  to  the 
policy  for  the  future.  If  the  machine  load  is  light,  it  is  a  guide 
to  the  management  in  helping  them  decide  what  to  release  to  the 
shop  for  making  to  stock  for  expected  future  sales. 

It  should  be  obvious  that  it  is  impossible  to  produce  any  more 
work  from  the  shop  than  the  primary  machines  can  handle.  If, 
however,  the  first  one  or  two  operations  are  performed  on  a  tool 
which  has  surplus  capacity,  it  is  not  advisable  to  consider  this  as 
the  primary  operation,  but  to  look  further  on  down  the  routing 
and  find  the  first  operation  which  is  of  considerable  magnitude 
or  on  which  there  tends  to  be  a  congestion  of  work. 

Economical  manufacturing  dictates  that  the  shop  demand 
should  control  the  receipt  of  material;  that  is,  enough  material 
should  be  in  the  plant  to  keep  the  machine  tools  busy.  If  the 


THE  CENTRAL  CONTROL  OF  PRODUCTION  79 

factory  produces  solely  on  order  and  does  not  build  ahead  in  dull 
times,  the  sales  schedules  and  the  machine  load  will  tie  together. 
If  the  product  is  standard,  and  the  machine  load  does  not  show 
enough  work  to  keep  the  machines  busy,  the  management  must 
decide  whether  to  let  the  machines  be  idle  and  lose  a  part  of  the 
organization,  or  to  build  ahead  of  the  sales  schedule  and  hold  the 
finished  material  in  stock  in  expectation  of  future  business. 

The  machine  load,  Fig.  35,  shows  the  number  of  hours  of  work 
ahead  of  each  machine.  We  do  not,  however,  go  so  far  as  to 
develop  a  load  on  the  individual  machine.  It  is  only  necessary, 
as  stated  above,  to  pick  up  the  load  on  the  primary  machine. 
If  there  happen  to  be  several  identical  primary  machines,  it  is 
possible  to  load  the  group  instead  of  the  individual  machine 
tools. 

The  machine  load  is  developed  from  the  schedule  control  graph. 
Thus,  if  the  schedule  control  shows  that,  during  a  given  week, 
the  first  operation  on  500  pieces  of  D41-1  must  be  performed,  and 
that  the  time  on  that  operation  is  20  hours,  we  note  on  our 
machine  load  the  part  number,  operation  number,  quantity  and 
time.  We  keep  on  adding  to  the  machine  load  the  various 
operations  which  are  performed  on  each  group  of  machines  until 
we  have  each  group  loaded.  If  there  is  more  work  than  capacity, 
what  is  left  must  be  loaded  onto  the  succeeding  week.  We 
usually  like  to  arrange  the  machine  load  in  periods  of  a  week. 

Control  graphs  are  not  made  out  to  cover  all  of  the  orders  on 
the  books.  Usually,  they  are  not  made  out  for  more  than  eight 
weeks  at  the  most.  The  machine  load  is  made  up  by  weeks  for 
about  6  weeks  in  advance  and  taken  from  the  control  graphs. 
All  of  the  orders  on  the  books  farther  ahead  than  6  weeks  are 
figured  separately  by  formula — (a  formula  of  machine  load  is 
made  for  each  type  of  transmission) — and  is  very  readily  made 
up  by  months  for  all  remaining  orders  on  the  books. 

The  machine  load  taken  from  the  control  graph  is  a  guide  to 
the  works  manager  or  superintendent  for  the  manning  of  his 
shop.  The  burden  thus  taken  off  is  a  prophecy  and  is  therefore 
not  absolutely  accurate,  having  a  probable  10  per  cent  error. 
Even  so,  it  guides  the  man  power  in  a  department  with  sufficient 
accuracy  so  that  there  is  not  the  tendency  to  keep  full  crews 'on 
when  it  will  be  weeks  before  there  is  a  full  load  on  the  machines 
of  the  department  in  question. 

The  machine  load  taken  from  the  balance  of  orders  is  a  guide 


80        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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THE  CENTRAL  CONTROL  OF  PRODUCTION       81 

to  the  sales  department  only.  This  being  a  prophecy  into  more 
distant  future,  it  has  correspondingly  increased  chance  for  error. 
As  it  is  used,  however,  for  an  influence  on  rather  broad  sales 
effort,  the  need  for  accuracy  is  less. 

It  is  easy  to  see  that  to  assign  a  delivery  date  for  new  work, 
it  is  merely  necessary  to  run  through  the  machine  load  record  to 
see  when  there  will  be  time  available  for  starting  new  work. 
For  example,  if  all  of  the  machines — except  one  set,  which  is 
loaded  completely — will  have  available  time  in  September,  and 
an  inquiry  includes  parts  which  must  pass  through  the  heavily 
loaded  machines,  the  plant  can  not  take  on  that  order  until  it  has 
completed  the  existing  work  on  the  heavily  loaded  group. 

In  such  an  event,  the  management  may  decide  to  set  back  the 
delivery  dates  on  the  prior  orders,  in  order  to  take  on  the  new 
work.  Or  perhaps  it  can  "farm"  the  extra  work  out  to  some 
neighboring  concern  that  is  not  busy.  In  any  event  the  decision 
is  an  intelligent  one,  based  on  the  information  given  by  the 
machine  load  record. 

Let  us  now  see  how  the  machine  load  is  a  guide  for  purchasing. 
From  the  schedule  control  graph,  we  know  upon  just  what  date 
each  part  must  be  started  in  process.  These  are,  of  course,  the 
limiting  dates  for  receiving  the  raw  materials.  In  order  to 
obtain  the  material  when  it  is  needed,  the  purchasing  department 
must  be  informed  sufficiently  far  in  advance  to  be  able  to  get  this 
material  into  the  shop.  To  this  end  the  planning  department 
sends  to  the  purchasing  department  the  rough  stock  delivery 
requirements,  Fig.  36.  Market  and  plant  conditions  must 
govern,  but,  as  a  rule,  it  is  advisable  to  tell  the  purchasing  depart- 
ment what  raw  material  the  shop  will  need  at  least  8  weeks  in 
advance. 

At  the  left  of  the  form,  Fig.  36,  are  placed  the  part  numbers 
which  are  shown  to  be  required  by  the  machine  load.  If  a 
required  part  is  made  up  from  some  other  part,  the  part  from 
which  it  is  made  is  indicated  in  the  second  column.  The  different 
weeks  in  which  this  material  must  be  brought  in  are  indicated 
under  "week  starting." 

How  to  Purchase. — The  line  called  "quantity  needed"  shows 
the  total  quantity  of  raw  material  which  should  be  brought  into 
the  shop  during  that  week,  as  shown  by  the  machine 
bad.  "  Rough  stock"  shows  the  quantity  of  stock  already  on  hand. 
Each  week,  this  form  is  extended  to  show  any  new  orders  received, 


82        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


THE  CENTRAL  CONTROL  OF  PRODUCTION       83 

in  order  to  keep  the  purchasing  department  in  close  touch  with 
requirements.  If  the  rough-stores  quantity  is  greater  than  the 
quantity  needed,  a  letter  "0"  indicating  " overage"  is  placed  in 
the  column  headed  O/S.  If  the  rough  stock  available  is  less  than 
the  quantity  needed,  a  letter  "S,"  denoting  shortage,  is  placed 
in  the  same  column  instead  of  the  "  O. "  When  additional  stock 
is  received,  if  the  quantity  is  great  enough  to  overcome  the 
shortage  in  any  given  week,  a  letter  "0"  is  placed  around  the 
"S"  indicating  that  the  shop  is  covered  to  that  point,  and  any 
balance  that  is  left  is  applied  against  the  succeeding  weeks,  until 
it  is  exhausted. 

Now  we  are  at  the  point  where  we  want  to  lay  out  a  schedule 
of  the  work  on  the  individual  machines.  This  is  done  graphi- 
cally on  the  machine  schedule,  Fig.  37,  from  the  information 
furnished  on  the  production  routing  sheet. 

Opposite  the  number  of  each  machine  in  a  department  is 
drawn  a  line  showing  the  length  of  time  each  series  of  parts  will 
be  on  the  machine.  It  is  really  but  a  detail  of  the  schedule  con- 
trol graph  for  the  latter  schedules  simply  as  to  operations,  while 
the  former  specifically  assigns  the  work  to  a  definite  machine. 
This  record  is  kept  in  the  central  planning  department  and  the 
actual  performance  is  entered  on  it  daily,  as  will  be  explained 
later,  so  that  future  assignments  can  be  adjusted  to  today's 
performance. 

The  Machine  Schedule. — The  machine  schedule  is  laid  out  to 
cover  one  or  two  weeks.  On  the  left-hand  side  are  listed  the 
numbers  of  all  machine  tools  in  the  department.  The  distance 
between  two  vertical  lines  represents  an  hour  of  elapsed  time. 

From  the  production  routing  sheet  for  parts  D41-1&2,  the 
schedule  man  notes  that  the  time  required  for  operation  1  is  2 
hours  per  lot,  or  20  hours  per  series.  He  sees  also  from  his 
routing  that  it  is  possible  to  perform  this  operation  on  machines 
204,  206  or  227.  He  notes  from  his  machine  schedule  that 
machine  204  will  be  available  at  8  A.M.  Monday,  machine  206 
at  12  M.  Monday  and  machine  227  at  about  10  A.M.  Thursday. 
He  might  decide  to  schedule  his  work  on  the  first  two  machines 
so  as  to  bring  out  his  10  lots  at  about  the  same  time,  or  he  might 
schedule  the  operation  altogether  on  either  machine  204  or  206. 
Let  us  assume  that  he  decides  to  schedule  it  all  on  206.  His  first 
step  is  to  draw  a  line  enough  over  20  hours  long  to  cover  the 
set-up.  This  line  he  marks  off  to  indicate  the  lots.  Over  this 


84        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

line  he  writes  part,  lot  and  operation  number,  and  so  on,  for 
each  of  the  10  lots.  It  is  advisable,  on  the  machine  schedule,  not 
to  attempt  to  schedule  more  than  3  days  ahead,  because  condi- 
tions will  arise  in  the  shop  such  as  machines  being  down  for 
repairs,  operators  being  off,  and  the  hundred  and  one  ailments  to 
which  a  machine  shop  is  heir,  and  which  are  likely  to  disrupt 
any  plans. 

After  the  work  has  been  scheduled  on  the  first  operation,  if  the 
second  should  start  immediately,  the  first  lot  should  be  scheduled 
in  on  the  machine  required,  leaving  a  lapse  of  6  to  10  hours 
between  the  time  it  should  finish  on  the  first  and  when  it  should 
start  on  the  second,  to  allow  for  inspections  and  trucking  between 
operations. 

After  drawing  in  the  line  representing  the  first  lot  on  operation 
1,  the  machine  on  which  operation  2  is  to  be  done  should  be 
noted,  below  the  right-hand  end  of  the  line,  and  when  operation 
2  on  the  same  lot  is  scheduled  and  drawn  in,  a  red  check  should 
be  put  against  the  first  operation.  By  means  of  this  check-mark 
it  is  possible,  by  looking  over  a  schedule  sheet  after  it  is  supposed 
to  be  completed,  to  tell  whether  all  lots  have  been  carried  forward, 
and  no  sheet  should  be  discarded  until  all  lots  are  checked  in 
order  to  make  sure  that  none  are  dropped.  If  this  were  not  done, 
an  important  lot  might  become  sidetracked  and  not  worked  on 
for  weeks. 

When  the  schedule  man  schedules  the  last  operation  in  his 
department  he  passes  the  tickets  for  all  following  operations  on 
to  the  man  scheduling  the  next  operation,  with  a  note  as  to  the 
approximate  time  when  the  parts  should  reach  the  next  depart- 
ment. This  gives  the  next  schedule  man  an  advance  notice  of 
work  that  is  on  the  way  to  his  department,  and  so  allows  him  to 
prepare  to  receive  it  when  it  arrives.  The  first  schedule  man  will 
ask  the  second  what  machines  the  work  will  go  onto  in  his  depart- 
ment and  will  then  place  this  machine  number  on  the  move 
order  and  service  card. 

Busy  Machines. — The  purpose  of  the  machine  schedule  is  to 
keep  the  fewest  possible  number  of  machines  busy  all  of  the  time 
and  still  keep  ahead  of  the  schedule  of  work.  It  is  much  better 
to  have  five  machines  busy  all  of  the  time  than  six  most  of  the 
time,  as  the  operators  are  kept  more  contented  by  means  of  it. 

Where  there  are  several  machines  close  together  on  any  one  of 
which  the  same  operator  can  work  and  on  which  the  operations 


THE  CENTRAL  CONTROL  OF  PRODUCTION  85 

are  generally  very  short,  the  machines  may  be  taken  together 
and  scheduled  as  a  group.  In  scheduling  for  a  group,  place  the 
machines  on  the  schedule  sheet  the  same  as  before,  but  note  in  a 
bracket  down  the  side  by  the  machine  numbers  that  they  com- 
prise a  group.  In  drawing  in  work,  no  attention  is  paid  to  which 
machine  will  probably  run  it,  but  each  one  is  loaded  in  turn  until 
all  work  to  be  done  is  taken  care  of.  If  there  were  four  machines 
in  a  group  one  might  show  as  having  no  work  scheduled  to  it  at 
any  time,  but  still  might  actually  be  used  all  of  the  time  and 
some  other  one  be  the  idle  one. 

The  schedule  man  should  keep  close  watch  on  the  amount  of 
idle  time  in  his  department  and  should  make  recommendations 
as  to  the  taking  on  and  letting  off  of  men  or  as  to  the  advisability 
of  working  overtime. 

We  have  now  determined  when  we  shall  start  our  work  and 
have  made  sure  that  the  raw  material  will  be  in  the  plant  in  time. 
The  next  logical  step  is  to  show  how  the  progress  of  the  various 
parts  from  rough  stores  through  the  shop  is  controlled  until  they 
arrive  in  a  completed  state  in  the  finished  stock.  But  that  is  a 
subject  which  can  best  be  described  separately  and  so  will  be 
discussed  in  the  next  chapter.  There  are  a  few  other  activities 
in  the  way  of  control  which  are  handled  by  the  central  planning 
department,  so,  while  the  records  of  this  department  are  fresh  in 
the  reader's  mind,  we  shall  jump  ahead  and  show  how  this 
central  control  is  exercised. 

Thus  far  we  have  shown  how  the  schedule  control  graph  and 
other  records  of  the  central  planning  department  are  used  to 
plan — that  is  to  foresee — work  and  needs.  It  is  also  necessary 
to  record  the  actual  progress  of  the  work  in  the  shop. 

How  Balanced  Production  is  Gained. — When  an  operation  on 
any  part  is  completed  the  central  planning  department  is  notified 
by  a  copy  of  the  workman's  service  card  and  that  information  is 
noted  on  the  graph. 

This  is  done  by  placing  a  large  headed  pin  at  the  first  dot  on 
the  first  operation,  or  on  whatever  operation  or  lot  the  service 
card  calls  for. 

On  any  date  if  all  of  the  pins  for  the  parts  of  an  assembly  are 
ahead  of  that  day's  line,  all  is  going  smoothly  on  that  particular 
assembly.  But  if  some  of  the  pins  are  several  days  ahead  of  the 
line,  and  the  rest  are  lagging  from  5  to  20  days  behind,  an  effort 
should  be  made  to  bring  the  laggards  up.  If  any  of  the  parts 


86         PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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THE  CENTRAL  CONTROL  OF  PRODUCTION  87 

which  are  behind  can  be  done  on  the  machines  that  are  doing  the 
operations  on  the  parts  which  are  ahead,  the  schedule  man  should 
divert  these  machines  to  the  slow  moving  parts,  in  order  to  bring 
them  up  even  with  the  others.  Balanced  production  is  what  the 
schedule  control  aims  to  give,  and  if  it  even  appears  impossible 
to  make  the  assigned  date  for  an  assembly,  the  production  man 
must  remember  that  it  is  far  more  important  to  have  all  the 
parts  come  out  at  the  same  time,  even  though  a  few  days  late, 
than  to  have  90  per  cent  arrive  on  time  and  10  per  cent  15  days 
later.  It  is  finished  assemblies  we  really  want — not  finished  parts. 

After  the  information  on  the  service  card  has  been  reflected  on 
the  schedule  control,  the  next  step  is  to  post  the  information  it 
contains  on  the  operation  check  sheet,  Fig.  38.  This  operation 
check  sheet  is  really  an  analysis  of  the  work  in  process  in  the  shop. 
Not  only  does  it  give  quantities  but  it  also  shows  which  lots  are 
lagging  and  which  are  moving  ahead.  It  is  also  used  by  the 
production  manager  to  keep  track  of  the  operating  end,  so  that 
he  can  see  whether  or  not  the  different  operations  are  being 
performed  in  the  proper  time. 

The  third  use  of  the  service  card  is  to  keep  up  to  date  the 
production  stock  and  demand  record.  All  pieces  that  are  not 
good  are  entered  as  rejected,  the  final  classification  and  disposi- 
tion of  these  pieces,  whether  scrap  or  reclaimed,  being  reported  by 
the  salvage  department.  The  service  card  is  next  used  by  the 
schedule  man  to  ascertain  the  total  time  that  the  job  has  taken. 

Checking  up  the  Work. — When  the  first  operation  is  done  and 
the  report  comes  to  the  machine  schedule  on  the  white  service 
card,  the  line  denoting  the  corresponding  operation  will  be 
checked  off  in  blue  and  the  time  actually  used  in  doing  the 
operation  will  be  drawn  in  on  the  schedule  at  the  point  where  it 
occurred.  This  shows  the  schedule  man  the  degree  of  efficiency 
of  that  job  and  if  the  time  taken  is  over  10  per  cent  greater  than 
the  time  allowed,  it  is  reported  to  the  general  foreman  in  charge 
of  that  division  who  investigates  the  matter  immediately. 

The  white  copies  of  service  cards  for  completed  operations  are 
brought  in  to  the  schedule  man  at  least  every  half  hour. 

These  copies  keep  him  in  very  close  touch  with  his  department. 
The  operation  is  checked,  as  frequently  the  lot  will  be  worked 
on  several  hours  or  even  days  away  from  the  time  it  is  scheduled 
and  as  a  result  it  might  be  difficult  to  find  which  lots  were  done  or 
yet  to  be  worked  on. 


88        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

The  machine  schedule  man  thus  can  keep  ahead  of  the  shifts 
in  scheduling,  which  becomes  necessary  when  the  work  in  the 
shop — as  invariably  happens — varies  from  the  standard  or 
estimated  time  given  on  the  machine  schedule.  This  does  not 
mean  that  he  has  to  go  back  and  change  what  he  has  already 
done,  but  means  that  he  can — in  scheduling  another  day's  work 
— observe  how  departure  from  the  standard  for  the  last  few  days 
will  affect  his  future  plans. 

We  have  now  seen  how  the  central  planning  department  lays 
out  the  work  for  the  shop,  and  how  it  checks  up  to  make  sure 
that  the  shop  lives  up  to  schedule.  But  plans,  no  matter  how 
good,  are  worthless  unless  they  are  executed,  and  many  planning 
systems  fail  because  the  plans  of  the  somewhat  remote  central 
department  are  not  followed  by  the  shop.  How  the  planning  is 
carried  to  the  men  in  the  shop  will  be  described  in  the  next 
chapter. 


CHAPTER  VIII 
CONTROLLING  THE  WORK  IN  THE  SHOP 

The  common  idea,  founded  on  the  teachings  of  the  early 
industrial  engineers,  is  that  a  schedule  of  production,  once 
drawn  up,  must  be  lived  up  to  whether  "school  keeps"  or  not. 
That  idea  offends  the  common  sense  of  most  managers,  for  they 
know  that  workmen  quit,  machines  break  down  and  the  actual 
production  of  both  varies  above  and  below  their  theoretical 
capacity.  If  an  inelastic  schedule  exists,  it  can  not  stretch  or 
contract  to  meet  the  actual  accomplishment  in  the  shop — it  will 
therefore  break  and  become  useless  at  the  first  emergency.  Also 
the  emergency  which  causes  the  breakage  may  be  so  slight  a 
thing  as  that  John  Jones  at  milling  machine  No.  5  has  had  a  bad 
night  and  today  is  turning  out  but  eight  parts  an  hour  when  the 
schedule  says  he  shall  turn  out  10. 

Whenever  anything  happens  in  the  shop  to  slow  down  or 
interrupt  any  operation,  obviously  all  succeeding  operations  will 
be  affected.  But  what  is  that  to  the  clerks  in  the  planning 
office  away  from  the  sweat  and  noise  of  the  shop?  The  schedule 
they  have  made  allows  for  no  delays — therefore  there  can  be  none. 
Such  planning  is  worse  than  useless.  Better  than  that  is  the 
extreme  opposite  method  of  handling  production  from  hand  to 
mouth  by  means  of  stock  chasers,  who  with  all  their  faults  are 
at  least  in  touch  with  the  shop  and  in  sympathy  with  its  trials 
and  troubles. 

Controlling  Production. — Neither  of  these  two  methods  is 
necessary.  The  good  points  of  both  can  be  attained.  The 
central  planning  department  can  be  given  control  of  production 
from  raw  materials  to  finished  stock,  and  yet  its  plans  and 
schedules  can  be  flexible  and  adjusted  to  the  day  by  day  happen- 
ings and  breakdowns  in  the  shop. 

The  method  we  are  describing  does  just  that — does  it  quickly 
and  easily  by  means  of  what,  for  the  sake  of  brevity,  we  will  call 
the  "booth  system." 

We  have  said  that  the  planning  department  must  be  given 
sufficient  authority  to  enable  it  to  carry  out  its  plans.  This 

89 


90        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


authority  must  be  exercised  in  such  a  way  as  not  to  interfere 
with  the  authority  of  the  individual  foreman.  One  of  the  chief 
objections  to  the  stock  chasing  system  has  been  the  breaking 


WGCo  Mfe,                   STQCK    REQUIS'IT|ON 

Cost   Department  Copy 

ACCOUNT  No. 

ORDER     NO 

LOT                                        QUANTITY                                       PAT 

/tf            ^TO 

TERN    NO.                        PART    NO 

~~T5»lf—f 

PART     NAME 

/    fttlfi/3  ffts±  *•*</      C?/T«££_ 

PRICE                AMOUNT 

DESCRIPTION 

/fa*.    -ZVfcy 

of    o 

F«.               RCPAI*       AC1IHI.             N.  P. 

o   o   o   n  : 

CROW    »T0RS    NO 
DELIVERED     B» 

DELIVER  TO                           /                  OA.TB 
OEPT        C  *f-           MACH      r6f 

«ECEIVBD    B»                                                           SIGNED 

"»""<"»    •""•- 

FIG.  39. — Stock  requisition  (made  out  in  duplicate,  1  pink  and  1  green). 

down  of  discipline  and  morale  due  to  the  intermittent  interfer- 
ence by  stock  chasers  with  the  laying  out  of  the  work  in  the 
manufacturing  departments.  The  booth  system  obviates  this, 


—  ••* 

WGCo.  MD40C 
SERVICE    TICKET 

Lot  No. 

^ 

Ne-ofPietrd 

Operaboo 

Wanted        ^^ 

Part^  
N°          *  3ff-f  -  / 

Completed 

Operation  No. 

; 

Dept 

Mach.  No. 

Material 

^7*  -?". 

Tool  No. 

fitt 

Good 

l^h 

Rejected 

Time 

Date 

T, 

ne 

MOVE 
To  Dept 

Hn. 

lOlra 

P  W  P 
O.K. 

Scrapped 

ggg 

WofLn 

Started 

To  Mack 

ft*. 

P.W 
Price 

r<>4 

Change 
MachT 

Su^dardTime 

r.o 

Er^ 

AmuEuoed 

FIG.  40. — Service  ticket  (made  out  in  triplicate,  1  white,  1  yellow  and  1  manila) . 

yet  gives  the  planning  department  control  of  the  flow  of  work  in 
a  department,  and  assures  flexibility  to  the  planning. 

The  Booth  System.— Of  necessity,  the  method  of  handling  the 
work  through  the  booths  varies  greatly  with  local  conditions. 
The  success  of  a  highly  developed  production  department  depends 
largely  on  smooth  running  booths  precisely  adapted  to  the 
peculiar  conditions  of  the  plant. 


CONTROLLING  THE  WORK  IN  THE  SHOP 


9-1 


No  matter  how  many  of  the  practically  innumerable  methods 
of  handling  production  booths  we  were  to  describe,  we  could  not 
cover  the  needs  of  all  kinds  of  machine  shops,  for  the  details 


MOVE  ORDER 


01*0(11    NO 

LOT 

QUANTITY 

PART  NO 

MOVE    FROM 

DELIVER    TO 

c?  ^/                *)  Ct 

DIPT                                                        MACH 

DIPT                                                             MACH 

DIPT                                                        MACM 

J 

REMARKS 


FIG.  41. — Move  order. 


must  be  different  to  meet  the  conditions  in  the  individual  shop. 
We  will  therefore  describe  the  booth  system  as  used  in  the  plant 
of  the  Warner  Gear  Co.,  as  throughout  this  book  we  have  largely 


-*«*.—**                                               IN  SLIP                                                   WGCO.MD42 

PRODUCTION  DEPARTMENT  COPY 

Date                                                          Or^Ar  No. 

Pattern                                                Par*  NA            ~Z?  V/-  / 

Lot  No.         /o                  s*^     Q     gr    o     O    "5^0 

Quantity 

LlMCTipt.on 

Price 

Amount 

4% 

/fa*  _7"  ~~~7/rAs/s 

C**m. 

Send  to  Dept.                  s.^.v..^. 

Sect. 

*Sev^  * 

5  7^                            In.Dfctoc 

Bin 

FIG.  42. — In  slip  (made  out  in  duplicate,  1  blue  and  1  pink). 

used  that  concern's  methods  as  a  model.  The  conditions  met 
in  that  plant  are  fairly  typical  of  those  in  the  majority  of  machine 
shops. 

Giving  out  Work  to  the  Shop. — Before  getting  to  the  booth, 
however,  we  must  go  back  to  the  central  planning  department  to 
see  how  work  is  issued  to  the  shop  in  accordance  with  the  plans 
as  shown  bv  the  schedule  control  graph  and  other  forms. 


92        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

From  the  parts  list,  Fig.  15,  the  planning  clerks  make  out  for 
each  lot  of  each  part  a  requisition,  Fig.  39,  in  duplicate;  three 
copies  of  a  service  card,  Fig.  40,  for  each  operation;  a  move  order, 
Fig.  41,  for  each  time  the  lots  move  from  the  jurisdiction  of  one 
booth  to  another;  an  in-slip,  Fig.  42,  in  duplicate;  and  a  traveler 
form,  Fig.  43.  These  forms  are  made  out  as  shown,  by  the  pro- 


PART  NO. 

£>*/-/ 

LOT  NO.                              N0.  PCS.                                   MATERIAL 

IO                   *s~o              /?**.  ?*o#. 

fc 

DN?- 

Wor 

inun 

hup.  No. 

Re- 

j«l<:4 

pc£y 

Operation  Namo 

E»r 

Night 

/ 

^</ 

~-r~      ^ 

/T«F<.~  /C-^^^G*. 

* 

c/ 

+ 

<?/ 

2?/7V<_i.        Oti.     Ho^fs 

s 

c/ 

22/T/t.  A.    2Loj^r    */  «  *-  »•-«• 

1 

c/ 

7 

c/ 

G             /f 

r 

<?/ 

j=-~  c*  :z-«  «^  ~ 

i 

c/ 

iZP/r/i-j-    3~fn.  ****   /-/  •  *.  ^ 

/• 

<?/^ 

•S'T'o  0  ^-. 

TRAVELER                                                wcco.  MD44 

FIG.  43. — Traveler  form. 

duction  department,  in  advance.  Since  one  form  for  each  lot 
in  the  series  must  be  made  out  identically  except  for  the  lot 
number,  some  duplicating  process  will  be  found  to  cut  what 
otherwise  might  be  an  onerous  clerical  cost.  We  have  found  the 
gelatine  machine  to  be  very  satisfactory  for  this  purpose.  As 
many  sets  of  the  tickets  may  be  made  out  in  advance  as  time  and 
general  conditions  warrant. 

They  are  filed  by  part  number  in  the  production  department 
in  a  file  called  ''service  cards  to  be  given  out."  A  handy  way 
to  file  the  forms  is  as  follows :  First  the  service  cards  for  the  first 
operation  attached  to  the  copies  of  the  requisition.  Service 
cards  then  follow  in  sequence  of  operation,  the  in-slips  being 
attached  to  the  service  cards  for  the  last  operation.  Move 


CONTROLLING  THE  WORK  IN  THE  SHOP  93 

orders  are  attached  by  means  of  a  clip  to  the  service  cards  for  the 
operation  preceding  the  move. 

The  man,  whose  duty  is  to  watch  the  schedule  control  charts, 


FIG.  44. — Exterior  of  booth. 


FIG.  45. — Interior  of  booth. 


sees  that  part  D-41-1  is  due  to  start  June  1,  in  department  C-4. 
From  the  file  he  removes  the  requisition  and  all  service  cards 
pertaining  to  the  progress  of  the  proper  number  of  lots  of  part 


94        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

D-41-1  through  department  C-4.     These  are  sent  to  the  booth 
man  of  department  C-4. 

The  booth  man  is  the  point  of  contact  between  the  central 
planning  department  and  the  shop.  The  number  of  men  and 
machines  which  a  booth  man  can  handle  depends  largely  upon 
the  number  of  lots  going  through  his  department  daily.  Since 
each  time  a  lot  is  completed  on  an  operation  it  demands  clerical 
work,  it  is  apparent  that  the  nature  of  the  work  in  a  shop  will 


FIG.  46. — The  production  board. 

determine  the  size  of  a  booth's  department.  About  225  time 
changes  is  the  most  a  good  booth  man  can  handle.  If  for  cost 
finding  purposes  the  shop  is  departmentalized,  it  is  often  well  to 
departmentalize  the  booths  to  correspond  somewhat. 

How  the  Booths  are  Made. — The  booths  themselves  are  of 
light  construction  and  occupy  a  floor  area  of  about  6  by  9  ft. 
Exterior  and  interior  views  of  a  typical  one  are  shown  as  Figs.  44 
and  45.  The  front  of  the  booth  is  sheathed  to  3  to  4  ft.  from  the 
ground  where  a  counter  is  placed  on  the  inside  of  the  booth. 
Above  this,  wire  screening  is  placed  for  a  height  of  5  to  6  ft.  An 
opening  is  provided  in  this  netting  through  which  the  service 
cards  may  be  handed  to  the  men. 

Mounted  in  the  screening  is  a  board  which  is  pivoted  at  the  top 
and  bottom  so  that  either  side  may  be  turned  toward  the  shop. 


CONTROLLING  THE  WORK  IN  THE  SHOP  95 

A  strong  clip  is  attached  on  each  side.  One  side  of  the  board 
is  painted  red  and  is  known  as  the  "truckers"  side,  and  the  other 
black  and  called  the  " booth"  side. 

Hanging  on  the  back  wall  of  the  booth  is  a  production  board, 
divided  into  sections,  each  section  of  which  is  divided  into  three 
compartments  as  shown  in  Fig,  46.  Each  section  is  labeled  to 
correspond  to  one  of  the  machine  tools  under  the  control  of  that 
booth.  In  the  bottom  compartment  are  kept  the  tickets  for 
the  job  running  on  the  machine;  the  middle  pocket  holds  the 
tickets  for  the  next  job  which  is  already  at  the  machine,  and  the 
top  pocket  is  for  work  that  is  in  the  department,  but  which  has 
not  as  yet  been  moved  up  to  the  tool. 

For  timekeeping  an  electrical  or  mechanical  device  should  be 
used.  A  rack  is  also  provided  to  be  used  in  connection  with  the 
timekeeping.  The  pockets  in  this  rack  are  numbered  to  corre- 
spond with  the  man's  number  in  the  department.  Aside  from  a 
few  box  files  and  the  usual  office  supplies  there  is  no  other  equip- 
ment in  the  booth. 

When  the  job  tickets,  which  are  sent  out  from  the  central 
control,  are  received  by  the  booth  man,  he  files  them  by  machine 
number,  keeping  them  in  the  sequence  in  which  they  were 
received  by  him.  These,  of  course,  are  placed  back  of  any 
work  which  is  already  in  the  file.  Travelers  are  filed  by  part 
number  in  a  separate  file  of  suitable  size. 

Regulating  the  Booth  Work. — Now  to  get  down  to  how  the 
work  of  the  booth  is  handled:  Let  us  say  that  the  booth  man, 
looking  at  his  board,  sees  that  there  are  but  two  jobs  ahead  of 
machine  202,  and  that  machine  202  performs  the  primary 
operation. 

How  does  he  insure  that  there  will  be  work  for  the  machine, 
so  that  no  time  will  be  wasted?  He  takes  from  the  job  file  the 
service  cards  for  machine  202,  to  which  are  attached  two  copies 
of  the  requisitions.  He  puts  the  service  cards  in  a  temporary 
file,  arranged  by  machine  tool  number.  From  the  traveler  file 
he  takes  the  traveler  which  corresponds  to  the  requisition,  and 
sends  it,  together  with  the  two  copies  of  the  requisition,  to  the 
stockroom  called  for  on  the  requisition. 

If  the  job  which  the  booth  man  has  ordered  out  for  the  machine 
is  different  from  the  one  running  there  at  present,  he  fills  out  four 
copies  of  a  "set  up  instructions"  form,  Fig.  47,  sends  one  copy 
to  the  tool  crib  as  a  notice  for  them  to  get  the  tools  ready  for  the 


96        PRODUCTION  ENGINEERING  AND  COST  KEEPING 


new  job  going  into  the  machine;  the  second  to  the  foreman  as  a 
notice  that  that  job  is  to  be  set  up;  the  third  to  the  salvage  depart- 
ment, and  keeps  the  fourth  copy  himself.  He  gives  on  this  order 
all  of  the  necessary  information  as  to  part  number,  machine  and 
operation  for  the  new  job,  and  also  tells  approximately  when  it 
should  be  ready  to  set  up.  This  order  should  be  given  out  at 
least  an  hour  before  the  tools  are  required,  to  give  the  tool  crib 
attendant  time  to  determine  whether  all  of  the  required  tools  are 
ready.  If  they  are  not,  the  booth  man  is  to  be  notified  immedi- 
ately so  that  some  other  job  may,  if  possible,  be  lined  up  for  that 
operator. 


Mavh    No 


Deliver  all  tools  (or  the  above 
operation  to  workman  at  machine 
indicated  NOT  LATER  THAN 
_„  .........  X  .............  A.M. 


Time  of  Posting  Notice.. 


A.M.>M. 


Booth  Man 


FIG.  47. — Set-up  instructions  (made  out  in  quadruplicate). 

The  stockkeeper  places  the  traveler  together  with  the  required 
amount  of  material  on  a  truck.  The  trucker  then  takes  the  lot 
and  one  copy  of  the  requisition  and  leaves  the  lot  at  the  machine 
called  for  on  the  requisition.  He  then  puts  the  requisition  on  the 
booth  man's  side  of  the  move  board,  and  returns  to  his  other 
work.  The  copy  of  the  requisition  which  has  been  left  in  the 
stores  is  posted  to  whatever  records  may  be  kept  by  the  store- 
keeper, and  is  then  sent  to  the  cost  department  for  its  records. 

The  copy  of  the  requisition  which  has  been  left  by  the  trucker 
on  the  move  board  notifies  the  booth  man  that  the  work  is  at  the 
machine  and  that  he  can  release  from  his  second  file  the  service 
cards  for  that  lot.  These  he  places  in  the  second  pocket  of  the 
production  board  in  the  compartment  for  the  machine  that  is  to 
perform  the  first  operation.  The  requisition  is  then  returned  to 
the  planning  department. 


CONTROLLING  THE  WORK  IN  THE  SHOP  97 

Following  the  Lot. — We  have  next  to  consider  the  steps  neces- 
sary to  follow  a  lot  as  it  goes  from  one  operation  to  another. 

Let  us  assume  that  the  operator  on  machine  202  has  completed 
a  job  and  that  his  next  job  is  the  one  which  we  have  just  requisi- 
tioned from  the  stores.  When  he  finishes  the  job  he  is  on  he 
comes  to  the  booth  window  and  turns  in  this  service  card  for  the 
previous  job.  On  the  back  of  this  service  card  has  been  noted 
the  number  of  his  next  job.  At  the  same  time  that  he  turns  in  his 
service  card  he  also  turns  in  the  traveler  which  he  has  taken  from 
the  lot  he  is  to  operate  next,  as  shown  on  the  back  of  the  service 
card  he  has  just  turned  in. 

The  " man's  copy"  and  the  " timekeeping  copy"  of  the  service 
card  for  the  previous  job  are  both  rung  out.  At  the  same  time 
the  service  cards  for  the  next  job  on  machine  202  are  taken  from 
the  center  pocket  of  the  board,  which  you  will  remember  holds 
"work  ahead  or  at  the  machine."  The  man's  copy  is  checked 
with  the  traveler  to  see  that  it  corresponds  as  to  part  number 
and  lot  number,  and,  if  it  does,  is  rung  in.  This  checking  is  done 
in  order  to  safeguard  against  the  workman  being  given  a  service 
card  for  the  wrong  lot.  The  time  keeping  copy  of  the  service 
card  for  the  previous  job  is  placed  on  the  move  board  as  a  signal 
to  take  the  completed  work  to  the  inspection  department;  or 
if  no  inspection  is  necessary,  to  the  machine  that  is  going  to 
perform  the  next  operation. 

How  the  Service  Cards  Are  Handled. — The  man's  copy  from 
the  previous  job  is  now  placed  in  a  file  arranged  by  the  man's 
number,  of  " men's  tickets  awaiting  inspection  report."  The 
cost  and  production  copy  of  the  service  card  is  placed  in  another 
file  of  service  cards  awaiting  inspection  report.  This  file  is  set 
up  by  machine  numbers.  The  file  of  the  man's  copy  of  the 
service  card  awaiting  inspection  is  set  up  by  days,  to  give  a  check 
on  the  inspection  department  lest  they  do  not  inspect  the  work 
in  the  sequence  in  which  it  comes  to  them,  and  also  to  insure 
that  the  work  does  not  lie  around  the  inspection  bench  too  long. 
This  file  is  gone  over  every  morning  and  jobs  that  have  not 
cleared  the  inspection  department  are  reported  to  the  head 
inspector  for  action.  When  the  lot  has  "been  inspected,  the 
inspector  returns  the  time  keeping  copy  of  the  service  card  to  the 
booth  with  his  report  as  to  pieces  good,  rejected,  and  scrap. 
He  also  enters  upon  the  traveler  the  same  date  and  also  the 
number  or  numbers  of  the  men  that  worked  on  the  lot. 

7 


98        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

From  the  copy  returned  from  the  inspection  department  the 
booth  man  enters  upon  the  man's  copy  and  the  cost  and  produc- 
tion copy  the  results  of  the  inspection.  If  a  job  is  not  inspected 
on  the  day  the  work  is  performed,  the  man's  copy  goes  to  the 
payroll  department  and  the  man  is  paid  for  the  number  of  pieces 
that  are  shown  on  the  ticket.  The  man's  copy  is  checked  in  the 
booth  at  the  end  of  the  day,  before  it  is  sent  to  the  time  keeping 
department,  to  see  that  no  time  is  missing  when  all  such  cards 
have  been  collected.  If  the  inspection  report  is  late  and  does  not 
arrive  until  the  following  day,  the  time  keeping  copies,  with  the 
inspection  report  entered  on  them,  are  sent  in  with  the  other 
service  cards  to  the  payroll  department  and  are  used  as  a  charge 
back  on  the  payroll,  the  payroll  department  sending  back  to  the 
shop  the  corresponding  man's  service  card  which  may  be  given 
to  the  man  if  desired. 

Should  the  Men  Hold  Their  Service  Cards?— There  is  a 
difference  of  opinion  as  to  whether  or  not  it  is  desirable  to  give 
to  the  men  the  copies  of  their  service  cards.  Usually,  the  extra 
effort  seems  worth  while,  for  the  men  like  to  know  in  advance 
what  their  pay  for  the  week  will  be,  and  are  better  satisfied  if 
they  do  know. 

If  a  man  is  unable  to  finish  an  operation  on  a  lot  by  quitting 
time,  it  is  obvious  that  some  means  must  be  provided  to  carry 
on  the  work  the  next  day.  The  situation  is  handled  in  this  way: 
For  those  jobs  which  are  going  to  extend  over,  an  additional 
time  keeping  and  man's  copy  of  the  service  card  is  made  out  in 
the  booth.  When  the  workman  finishes  work  on  the  job  for  the 
night,  he  turns  in  the  first  copy  of  his  card,  stating  on  it  the 
number  of  pieces  that  he  has  completed.  This  amount,  sub- 
tracted from  the  number  of  pieces  in  the  lot,  is  marked  on  the 
two  copies  of  the  service  cards  made  out  for  the  next  day.  The 
service  cards  which  he  has  turned  in  are  handled  in  the  same 
manner  as  explained  before.  The  second  set  is  then  placed  in 
the  time  file,  ready  to  be  given  to  the  man  when  he  comes  in  to 
begin  work  in  the  morning. 

If  for  any  reason  it  becomes  desirable  to  carry  forward  some 
of  the  pieces  of  the  lot  before  the  whole  lot  is  finished,  a  complete 
set  of  service  cards  for  all  succeeding  operations  is  made  out  for 
the  quantity  that  is  to  be  sent  forward.  If  the  original  lot  is 
No.  10,  these  delayed  or  forwarded  pieces  are  given  lot  No.  10A, 
enabling  them  to  go  through  the  shop  as  a  unit. 


CONTROLLING  THE  WORK  IN  THE  SHOP  99 

Keeping  up  with  Production. — If  a  situation  develops  where 
a  man  working  on  a  lot  is  called  upon  to  stop  work  on  that  lot 
in  order  to  let  through  some  job  that  has  fallen  behind,  the  man's 
copy  and  the  time  keeping  copy  of  the  service  cards  are  rung  out 
and  are  attached  to  the  white  copy,  and  put  in  the  center  pocket 
of  the  machine  showing  that  the  job  is  at  the  machine  and  is  to 
be  worked  on  next.  The  new  job  is  handled  as  described  before. 
The  partly  finished  lot  should  be  finished  up  as  soon  as  possible 
after  the  rush  job  is  completed. 

When  the  last  operation  on  a  part  is  completed  and  the  inspec- 
tion report  has  been  received  on  the  manila  copy  of  the  service 
card,  the  quantity  of  good  pieces  is  entered  by  the  booth  man  on 
both  copies  of  the  in  slip  and  these  are  placed  on  the  move  board 
as  a  notice  to  take  the  parts  called  for  into  the  final  inspection. 

The  Final  Inspection. — The  final  inspector  after  checking 
over  all  pieces,  signs  the  two  copies  of  the  in  slip,  changing  the 
quantity  called  for  if  any  parts  are  rejected,  and  making  out  a 
rejection  notice  for  the  rest.  The  move  man  then  takes  the  good 
pieces  with  both  copies  of  the  in  slips  to  the  finished  stockroom. 

The  finished  stock  keeper  removes  the  in  slips  from  the  work, 
checks  the  quantity  again,  and  after  entering  the  quantity  on  his 
record  sends  the  pink  copy  to  the  cost  department  and  the  green 
copy  to  the  production  department. 

The  green  copy  acts  as  a  posting  medium  on  the  operation 
check  sheets  and  production  record,  after  which  they  are  filed 
by  days  for  reference. 

Eliminating  Non-productive  Labor. — All  of  this  talk  of  booth 
men,  planning  department  and  so  on,  might  well  lead  the  reader 
to  believe  that  to  plan  production  a  large  amount  of  so-called 
non-productive  clerical  help  would  have  to  be  put  on  the  plant 
payroll.  The  contrary  is  true.  For  one  thing,  the  stock 
chasing  force  is  nearly  eliminated.  The  booth  men  do  the  work 
both  of  the  time  keepers  and  stock  chasers.  The  accompanying 
table  tells  the  whole  story  of  what  happened  to  the  non-produc- 
tive labor  in  the  plant  of  the  Warner  Gear  Co.  when  production 
was  fully  planned. 

Note  that  in  spite  of  the  greatly  increased  amount  of  goods 
which  came  in  and  went  out  of  the  plant,  there  was  no  increase 
of  receiving  clerks  and  only  one  additional  shipper  was  put  on. 
That  is  because  their  work,  too,  was  planned  so  that  it  did  not 
come  "all  in  a  bunch/'  but  ran  about  the  same,  day  in  and  day  out. 


100      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


BEFORE 

AFTER 

PRODUCTION 

PRODUCTION 

INCREASE 

WAS 

WAS 

OR 

DEPARTMENT 

PLANNED 

PLANNED 

DECREASE 

Inspectors 

118 

74 

—44 

Truckers 

42 

23 

—  19 

Production  and  planning  

12 

39 

+27 

Stock  chasers                      .... 

22 

6 

-16 

Tool  room 

39 

23 

—  16 

Tool  crib  and  tool  grind 

33 

32 

_   i 

Shop  clerks   

26 

13 

-13 

Sweepers                             .    .  . 

43 

27 

—  16 

Shipping 

11 

12 

4-    1 

Receiving 

10 

10 

o 

Millwrights           . 

81 

61 

—  20 

Store  rooms 

42 

40 

_  2 

Factory  office  .  . 

20 

42 

+22 

Total 499  402  -97 

The  same  reason  was  responsible  for  the  cut  in  non-productive 
labor  throughout.  When  work  comes  through  irregularly,  it  is 
necessary  to  have  enough  men  on  hand  to  take  care  of  the  "  peaks" 
which  occur  when  a  rush  of  work  comes  through.  These  same 
men  are  naturally  more  or  less  idle  between  the  rush  periods. 

A  well-planned  shop  has  no  rush  periods.  Since  the  work 
flows  evenly,  each  hour  sees  just  about  the  same  amount  of 
materials  moved  by  the  truckers,  and  inspected.  Hence  fewer 
truckers  and  inspectors  are  needed.  Even  the  work  of  the 
sweepers  can  be  planned  so  that  at  a  certain  hour  each  day  the 
same  department  will  be  cleaned  and  the  sweepers  will  be  moder- 
ately busy  all  day  with  no  alternating  periods  of  frantic  rush  and 
idleness. 

The  reduction  of  16  men,  or  73  per  cent,  in  the  stock  chasing 
force  of  the  plant  under  discussion  was  a  direct  measure  of  the 
reduction  of  emergencies.  Most  of  the  work  now  moves  accord- 
ing to  schedule  and  gets  to  its  destination  at  the  appointed  time 
without  being  given  any  special  attention. 

Increasing  Production  Two -thirds. — The  need  of  new  tools  is 
foreseen,  and  last  minute  orders  for  tools  are  avoided.  A  force 
of  23  tool  makers  working  full  time  now  regularly  handles  more 
work  than  did  the  former  39  who  were  rushed  one  day  and  idly 
waiting  for  something  to  do  the  next. 

Even  though  the  number  of  men  who  give  out  and  care  for  the 


CONTROLLING  THE  WORK  IN  THE  SHOP  101 

tools  was  reduced  by  only  one,  remember  that  the  production  of 
the  plant  was  increased  62J  per  cent,  which  normally  would 
call  for  a  similar  increase  in  toolroom  attendants.  The  same 
holds  true  for  such  other  non-productive  departments  as  shipping, 
receiving,  stores  and  so  on;  61  millwrights  now  do  fully  50  per 
cent  more  work  than  81  formerly  did,  due  to  the  fact  that  their 
work  is  foreseen  and  planned. 

The  staff  of  the  production  and  planning  department  has 
been  increased  to  39  from  12.  That  was  to  be  expected,  but  13 
of  the  increased  number  of  clerks  was  transferred  from  the  old 
factory  office,  the  force  of  which  has  been  cut  in  half. 

These  savings  in  overhead  are  mere  details,  of  course,  but 
often  they  alone  more  than  repay  the  change  from  unplanned  to 
planned  production.  It  must  not  be  forgotten  that  the  big 
advantage  of  planning  is  in  the  increased  production  at  lower 
cost  which  it  makes  possible. 


CHAPTER  IX 
PLANNING  IN  THE  JOBBING  SHOP 

We  will  grant  that  not  even  a  majority  of  the  machine  shops 
have  quantity  production  as  does  Ford,  for  instance.  Probably 
a  small  percentage  of  the  total  quantities  of  a  single  part  are  as 
high  as  1,000  at  a  time,  but  most  shops  have  lines  of  product  on 
which  they  specialize  as  to  general  type,  although  they  may 
run  through  only  two  or  three  or  a  half  dozen  on  an  order. 

When  Can  Work  Be  Planned? — The  quantity  run  does  not 
determine  whether  or  not  the  work  can  be  planned.  It  only 
determines  how  far  ahead  it  can  be  planned.  Planning  depends 
upon  the  possibility  of  forecasting  approximately  how  long  an 
operation  will  take.  Of  course,  if  no  operation  were  ever  repeated 
— if  no  two  similar  parts  were  ever  made,  it  is  possible  that  the 
effort  of  planning  the  work  would  not  be  worth  while.  But  that 
condition,  we  believe,  need  not  exist.  Even  a  repair  shop  has 
enough  jobs  of  similar  nature  to  warrant  at  least  crude  planning, 
although  its  efforts  be  only  to  keep  machines  busy  and  the  work 
progressing  without  delays.  There  are  cases  where  the  repair 
work  has  been  successfully  planned  in  machine  shops  of  industries 
where  the  shops  were  maintained  solely  to  make  repairs  on  the 
factory  equipment.  The  results  in  such  shops  have  invariably 
been  to  expedite  the  repairs  and  to  maintain  an  even  force  of 
mechanics,  all  of  whom  are  reasonably  busy  most  of  the  time. 

The  Difficulties  Are  More  Apparent  than  Real. — The  execu- 
tives of  one  large  shop  which  turns  out  a  variety  of  heavy  and 
fairly  complex  assemblies,  were  unanimously  skeptical  that  the 
work  could  be  planned.  They  admitted  that,  if  their  production 
could  be  planned,  the  output  could  be  increased,  costs  lowered 
and  much  of  the  money  tied  up  in  goods  in  process,  released. 
But  they  pointed  to  the  special  machines  which  they  made, 
seldom  more  than  six  of  a  kind  to  an  order.  And  they  also 
pointed  out  that  nearly  every  customer  demanded  slight  changes 
from  normal.  They  said  with  assurance  that  they  made  30,000 
parts.  The  seeming  complexity  of  their  product  made  them 
doubtful,  but  they  were  in  so  much  trouble  from  broken  promises 

102 


PLANNING  IN  THE  JOBBING  SHOP  103 

and  slow  production  that  they  decided  to  see  if  planning  could 
do  anything  for  them. 

Analyze  Your  Output. — Now  the  first  thing  to  do,  as  we  have 
shown  in  a  previous  chapter,  is  to  find  out  exactly  what  the  shop 
does  make.  An  analysis  of  10  years'  output  showed  that  this 
concern  had  made  five  widely  different  machines.  Counting 
the  variations  in  slight  or  great  degree  from  the  standard,  it  was 
found  that  several  hundred  types  had  been  made.  Many  of 
these  variations,  however,  consisted  only  in  slight  dimensional 
variations  in  a  part  of  two — many  of  them  unnecessary.  Instead 
of  30,000  parts,  we  found  that  but  a  trifle  more  than  15,000  had 
ever  been  made;  more  than  5,000  had  not  been  made  in  5  years 
and  less  than  6,000  could  be  called  at  all  usual — much  less 
standard. 

A  still  further  analysis  showed  that  when  two  machines  of  the 
same  kind,  but  perhaps  of  a  different  size,  were  made,  it  was 
unusual  to  use  any  of  the  same  parts  on  both  machines.  This 
deviation  was  often  most  slight,  yet  it  precluded  manufacturing 
in  even  small  lots  to  stock.  Variations  from  standard  are  not  ony 
tremendously  expensive,  but  usually  are  wholly  unnecessary. 
The  customer  who  wants  a  whim  gratified  may  think  that  a 
difference  in  dimension  is  essential.  His  particular  desires  at 
the  time  seem  of  surpassing  importance  to  him  and  to  the  manu- 
facturer who  is  after  his  order.  But  5  years  later  when  the  sales 
urge  is  forgotten,  and  the  variations  from  standard  can  be  seen  in 
perspective,  most  of  them  are  ridiculously  trivial.  It  is  then 
easy  to  see  that  the  standard  machine  would  nine  times  in  ten, 
have  served  the  purpose. 

The  whims  of  the  customer  are  not  alone  to  blame  for  this 
condition — a  thoughtless  engineer  will  often  design  a  different 
part  for  each  size  of  a  machine  of  the  same  type  where  a  single 
part,  perhaps  of  compromise  design,  will  often  serve  the  purpose. 

Suppose  that,  in  designing  two  machines  of  different  capacities, 
the  heavier  one  demands  certain  parts  to  be  heavier.  To  save 
metal,  this  part  may  be  redesigned  for  the  smaller  machine. 
And  yet  economy  would  often  result  if  the  heavier  part  were 
used  for  both  machines;  the  economical  manufacture  more  than 
offsetting  the  excess  material. 

So  much  has  been  said  about  standardization  that  it  is  not 
necessary  to  prove  its  case  in  detail.  Any  one  will  admit  its 
advantages — for  the  other  fellow.  But  few  can  apply  the  lessons 


104      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

to  their  own  product.  The  problem  is  too  close — the  demands  of 
customers  too  insistent. 

Is  Standardization  Practical? — However,  it  is  this  that  stands 
between  many  concerns  and  economical  manufacturing.  It 
prevents  planning  in  many  shops  which  might  use  it.  That  is 
why  we  have  given  time  to  a  discussion  of  so  hackneyed  a  subject. 
For  the  first  step  in  planning  in  a  shop,  is  to  study  the  product 
and  eliminate  needless  variations  of  design,  so  that  ultimately 
more  parts  of  a  single  design  may  be  put  into  process. 

This  settled,  the  next  step  is  to  study  the  demand  to  the  end 
that  some  parts  may  be  manufactured  for  stock.  The  more  of 
this  that  can  be  done  the  better,  for  certain  parts  in  shops  of  the 
type  under  consideration  will  admittedly  always  have  to  be  made 
on  sales  order.  If  some  parts  may  safely  be  made  in  anticipation 
of  future  orders,  they  can  not  only  be  economically  produced  on 
a  single  set-up,  but  they  can  be  put  on  machines  which  would 
otherwise  be  idle,  thus  increasing  the  machine  activity.  It  is 
just  such  points  as  these  that  make  the  difference  between  skilful 
management  and  unskilful.  They  are  generally  admitted,  but 
seldom  practiced,  because  most  men  think  they  face  peculiar 
conditions.  The  change  in  methods  will  assuredly  show  up  at 
the  year's  end  in  the  company's  statement.  It  will  show  up 
more  markedly  in  the  cost  system  if  a  good  one  is  in  use. 

Now,  as  with  quantity  production,  the  time  of  starting  a  job 
depends  upon  the  time  taken  for  each  operation.  Time  is  the 
essence  of  planning;  accurate  knowledge  of  time  is  the  key.  If 
standardization  has  been  carried  out  to  a  reasonable  degree, 
time  studies  of  the  various  operations  on  each  part  are  well 
worth  making,  even  if  an  operation  is  performed  only  a  few 
hundred  times  a  year.  Perhaps  in  the  ordinary  shop  only  50 
per  cent  or  so  of  the  operations  will  be  reduced  to  definite  time 
studies,  although  it  is  usually  possible,  and  profitable,  to  get 
time,  on  90  per  cent  of  the  operations. 

When  an  absolutely  new  job  comes  up,  the  time  may  be  fairly 
accurately  forecast  by  reference  to  the  tables  which  are  described 
farther  on  in  this  chapter. 

What  Analysis  Will  Show. — In  analyzing  the  product,  it'  is 
essential  to  analyze  the  operations  to  be  performed  down  to  their 
elements.  What  may  be  considered  at  first  glance  to  be  an 
operation  is  thus  found  to  comprise  several  less  complex  ones. 
In  this  way  times  for  each  elemental  operation  may  be  set,  often 


PLANNING  IN  THE  JOBBING  SHOP  105 

by  actual  time  study,  from  which  times  on  nearly  any  series  of 
operations,  no  matter  how  new  or  complex,  may  be  built  up 
synthetically. 

Piece  rates  were  set  recently  for  various  operations  in  this 
way  in  an  industry  where  literally  no  two  orders  are  identical. 
Yet  it  was  possible  to  analyze  the  operations  to  a  point  where  a 
piece  rate  may  be  fairly  set  for  any  conceivable  product,  no 
matter  how  complicated.  Only  about  1,000  elemental  times  had 
to  be  set.  With  1,000  elemental  operations,  a  good  many  million 
combinations  may  be  set  up. 

We  believe  that  that  shop  would  indeed  be  an  exception  which 
required  more  than  2,000  or  3,000  or  so  such  elemental  times. 
It  is  all  a  matter  of  intelligent  analysis  by  a  man  thoroughly 
familiar  with  shop  practice  and  the  equipment  of  the  specific 
shop  which  is  being  studied. 

The  schedule  control  graph  which  was  described  in  Chap.  VII 
may  be  used  with  minor  changes.  In  the  first  place  it  is  not 
feasible  to  attempt  to  plan  the  work  into  the  shop  so  far  ahead, 
nor  so  accurately,  for  the  runs  change  more  frequently  and  esti- 
mates of  the  time  needed  must  to  a  degree  take  the  place  of 
known,  accurate  standards. 

Furthermore,  the  work  of  the  shop  is  not  planned  to  machines. 
The  machine  tools  of  such  a  shop  as  we  are  considering  may  best 
be  arranged  in  batteries,  keeping  similar  machines  together. 
The  unit  line-up  is  economical  only  when  similar  parts  go  through 
the  same  series  of  operation  year  in  and  year  out. 

The  First  Steps  in  Planning. — While  the  routine  of  planning 
must  vary  to  fit  the  needs  of  each  shop,  it  seems  advisable  to 
describe  the  methods  installed  in  a  particular  shop  which  is 
fairly  typical  of  most  shops  not  engaged  in  quantity  production. 
This  shop  employs  about  150  men.  It  has  a  well  developed 
engineering  department  and  the  machine  tools  are  assorted  in 
different  sizes,  such  as  lathes,  drill  presses,  together  with  the 
other  usual  tools  found  in  machine  shops.  The  company  special- 
izes in  conveyor  machinery,  offering  to  the  trade  certain  standard 
models  in  standard  dimensions.  However,  orders  are  taken  for 
special  machinery,  which  causes  variations  from  the  standard, 
so  that  the  shop  we  are  considering  conforms  with  the  conditions 
which  we  mentioned  earlier. 

Let  us  see  how  this  shop  handles  an  order  for  a  coal  conveyor, 
the  physical  location  of  which  necessitates  changes  from  standard 


106      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


in    height,   width   and   pitch  of  chain,  and  dimensions  of  the 
buckets. 

When  this  order  is  received  it  is  turned  over  to  the  engineering 


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department  which  prepares  drawings  of  the  complete  assembly; 
of  the  different  minor  assemblies;  and  detailed  drawings  of  each 
part.  At  the  same  time  the  engineering  department  prepares 
from  these  drawings  a  parts  list  or  bill  of  material,  showing  the 
number  of  the  different  parts  required  in  the  different  assemblies 
and  the  dimensions  of  the  rough  stock,  together  with  the  informa- 
tion as  to  whether  the  part  in  question  is  to  be  manufactured  or 


PLANNING  IN  THE  JOBBING  SHOP  107 

purchased.  This  bill  of  material  may  be  similar  to  the  one  shown 
in  Chap.  IV,  " Engineering  the  Product."  A  copy  of  the  bill  of 
material,  together  with  a  blueprint  of  the  drawing  is  then  turned 
over  to  the  shop  superintendent. 


Machine  No 
Type  ______ 

Speed  Ranges       R.P.M.  of  Spindle...-4-.5.T-5-CL3.  _________ 

Max.  H.P.  Available  .......  .T_._feL£  _____  .......  ____________ 

Method  of  Gear 


Max.  safe  cut     C.I.  ............  .  ..........  _________________ 

"  "       »       Steel  ...........  .  ........  __________________ 

liax.  dia.  of  work  handled__JLSi!!_  __________________________ 

«     Height  of    "  • 

Method  of  handling  work  .. 


Boring  Mills  &  Drills 


FIG.  49. — Machine  data  sheet. 

The  next  step  is  to  determine  how  to  make  the  different  parts 
and  through  which  machine  tools  they  shall  pass.  Whether  you 
operate  a  job  shop,  or  a  repetitive  operation  shop,  in  the  beginning 
someone  must  decide  just  what  operations  are  to  be  performed 
upon  the  piece.  Your  problem  is  fundamentally  no  different 
from  that  of  the  repetitive  operation  shop. 

On  a  route  sheet  for  each  part,  the  different  operations  are 
listed,  together  with  the  machine  tool  which  is  best  adapted  to 
do  the  work  in  question.  A  route  sheet  was  described  in  Chap. 


108      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


VI.  One  especially  designed  for  this  shop  is  shown  in  Fig.  48. 
So  far  we  have  developed  the  same  information  as  we  did  for  the 
Warner  Gear  Co.'s  repetitive  work,  except  that  on  the  route  sheet 


no  times  are  shown.  It  therefore  is  necessary  to  forecast,  as 
accurately  as  possible,  the  time  that  these  various  operations  will 
take.  But  first  we  must  know  the  capacities  of  every  machine 
in  the  shop.  Therefore  on  a  form  similar  to  Fig.  49  we  gather 
the  information  as  to  the  capacity  and  method  of  handling  the 
work.  From  a  study  of  the  machine  we  also  draw  up  a  card 


PLANNING  IN  THE  JOBBING  SHOP 


109 


similar  to  that  shown  in  Fig.  50,  which  shows  the  speeds  and  feeds 
for  the  various  combinations  of  gear  and  belt  positions.  These 
two  records  give  the  theoretical  operational  capacity  of  the 
various  machines. 

The  Methods  in  One  Shop. — However,  before  we  can  really 
set  any  times  we  must  know  how  long  it  takes  to  set  up  a  machine 


MAN*.. «AT« 

MANC .- «ATt 


tntoCf/'je'Jfn'as' 


_    ...«AT« 


eo/t 


^g*fi<r-/ 


^kfiZl 


FIG.  51. — Time  study  of  elementary  movements. 

and  we  therefore  make  time  studies  of  the  length  of  time  it 
takes  to  make  certain  elementary  moves  around  the  machine. 
On  a  planing  machine,  for  instance,  the  following  operations  have 
to  be  performed  in  some  cases:  the  tool  must  be  placed  in 
the  clapper  box;  the  head  of  the  planer  raised  or  lowered;  the 
power  turned  on  the  machine;  the  power  turned  off;  the  stop 
motion  adjusted,  etc.  A  time  study  form  on  which  the  standard 
times  for  each  of  these  motions  have  been  recorded  is  shown 
as  Fig.  51. 


110      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


The  figures  in  the  column  headed  "Std"  are  the  standard  times 
in  seconds.  Item  4  shows  that  4  sec.  are  allowed  for  adjustment 
plus  0.4  sec.  per  inch  of  movement.  The  same  method  is  used 
for  showing  the  standards  for  items  5  and  9. 


-A,'     %tT*.LlD3p&AT,otfc&D12     « 

Dept.  No.                                  Mch.  No..                           Order  Nn. 

Dr.  No. 

Symb.  and  Patt.  NO- 

Operation 

Nft. 

Scheduled                                               Q 
to  start                                                     « 

iy.  <* 
tisord 

Qty.  or 
this  lot 

1 

Piece  Name 

No.  pcs.  Def.                                                 II 

o.pc*. 

Fin. 

SEQUENCE  OF 
OPERATIONS 

SPEED 

FEED 

CUT  IN 

LIMIT 

F.    P.    M. 

BELT 

GEARS 

INCHES 

HOURS 

10TH* 

Total  time  limit 

Started                                                                Finished 

When  Completed,  return  this  Card  to  Planning  Department 

FIG.  52. — Detailed  operation  card. 

Now  for  each  operation  on  a  part  we  are  able  to  set  a  time, 
simply  by  picking  out  the  elementary  motions  that  the  man  will 
have  to  make  at  the  machine  tool  to  place  the  piece  in  a  position 
to  be  cut.  Knowing,  from  the  forms,  Figs.  49  and  50,  the  speed 


PLANNING  IN  THE  JOBBING  SHOP 


111 


and  feed,  we  can  easily  figure  out  the  length  of  time  that  the 
actual  cutting  of  the  metal  will  take,  which  will  be  close  enough 
for  all  practical  purposes  of  planning.  This  estimated  time  will 


Fo 

D 
P 

U 
0 
0 

rm  No.    176—  Magee  20-1683 

TOOL  CARD 

r  NO                 Pott.  No.                 Symbol  No  

peration  No  Dept.  No  ...Mch.  No  

I 

Kept  at  Machine 

To  be  Delivered  from  Tool  Room 

4 

1 

1 

FIG.  53. — Tool  card. 


actually  be  close  enough  to  enable  us  to  set  a  bonus  if  we  desire. 
This  synthetic  time  which  we  have  built  up  from  the  known 
elemental  times,  gives  the  time  for  the  operation  as  a  whole, 
which  time  is  placed  on  the  routing  sheet,  Fig.  48.  The  same 
procedure  is  followed  for  each  operation.  Thus,  we  have  devel- 


112      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

oped  for  the  unknown  piece  coming  into  our  shop,  a  routing  show- 
ing the  operations,  machine  tools  and  times. 

We  have  now  determined  the  time  which  each  operation  should 
take.  We  will  make  an  effort  to  see  that  conditions  are  such  that 
the  workman  can  do  the  work  in  the  estimated  time. 

Speeding-up  the  Workmen. — To  that  end  we  give  to  the  work- 
man a  detailed  operation  card  for  each  operation,  showing  him 
the  speed,  the  feed  and  the  cut  in  inches,  and  also  the  time  limit 
that  we  have  assigned  for  each  operation.  This  is  shown  in 
Fig.  52. 

Also,  at  the  same  time  that  the  routing  is  made  out,  the  super- 
intendent places  upon  the  route  sheet  the  number  of  the  tool 
which  is  to  be  used.  A  copy  of  this  information  is  noted  upon  the 
tool  card,  Fig.  53,  for  the  operation  in  question,  which  is  sent  to 
the  toolroom  by  the  planning  department  when  the  work  is 
released  to  the  shop. 

We  now  come  to  the  actual  planning  by  means  of  a  schedule 
control  graph  the  same  in  principle  as  the  one  shown  in  Chap. 
VII,  although  in  practice  it  may  be  different  for  every  shop. 

The  schedule  control  graph  is  made  up  from  the  routings,  all 
operations  on  each  part  being  drawn  backwards  and  producing  a 
series  of  lines  ending  at  irregular  points. 

We  have  made  no  attempt,  at  this  time,  to  assign  a  definite 
delivery  date  to  our  article.  Before  we  do  that,  there  are  one  or 
two  points  that  must  be  considered.  For  example,  if  new  cast- 
ings are  required,  we  must  plan  to  get  out  the  patterns  and  to 
get  the  castings  from  the  foundry.  The  duration  of  time  allowed 
for  this  should  also  be  drawn  on  the  schedule  control. 

You  will  note  here,  a  slight  difference  from  the  procedure 
described  in  Chap.  VII.  At  the  plant  of  the  Warner  Gear  Co. 
the  manufacture  of  castings,  say,  was  not  shown  on  this  schedule 
control  graph  for  the  material  used  there  was  coming  in  in  a 
constant  flow  from  raw  stores.  Each  new  job  that  came  into 
the  shop  did  not  require  a  special  pattern  and  castings. 

It  is  also  desirable  to  be  able  to  speed  the  work  up  in  case  the 
delivery  requirements  of  the  customer  are  pressing.  It  can 
readily  be  seen  that  if  we  can  roughly  estimate  the  piece  which 
will  take  the  longest  time  in  the  shop,  that  the  drawing  for  that 
piece  should  be  given  precedence,  and  it  is  well  to  indicate  this 
fact  on  the  schedule  control. 

Therefore  we  then  have  this  marked  difference  between  the 


PLANNING  IN  THE  JOBBING  SHOP  113 

schedule  control  graph  of  the  repetitive  shop  and  the  control 
for  this  particular  shop.  The  control  graph  for  this  shop  shows 
when  the  drawings,  patterns  and  castings  are  required.  Of 
course,  sufficient  time  should  be  left  between  each  one  of  these 
dates  for  the  drawing  to  get  to  the  pattern  shop,  to  allow  the 
pattern  to  get  to  the  foundry,  and  to  allow  the  foundry  time  to 
deliver  the  casting  to  the  machine  shop. 

Working  Backwards. — Again  we  repeat  it  is  not  so  important 
that  some  of  the  parts  land  at  the  assembly  floor  on  a  given  date, 
as  it  is  that  all  of  the  parts  land  on  the  assembly  floor  at  nearly 
the  same  date.  It  is  better  to  have  all  of  the  parts  for  one 
assembly  done  on  time  than  to  have  some  parts  for  three  machines 
done,  and  certain  parts  for  all  three  lacking. 

We  can  then,  by  taking  the  number  of  hours  that  the  shop 
works,  ascertain  the  different  dates  when  any  operation  should 
be  completed.  In  other  words,  we  can  determine  when  the 
drawing  should  be  started ;  the  date  the  pattern  should  be  started ; 
the  date  delivery  should  be  made  to  the  foundry;  and  the  date 
the  castings  should  be  delivered  to  the  shop.  Now  that  we  have 
prepared  the  schedule  control  graph  we  next  have  to  see  how  it 
serves  as  a  guide  in  producing  the  work.  Therefore  let  us  see 
how  this  is  done  by  the  production  manager  who  has  under  his 
jurisdiction  the  making  of  the  conveyor  that  we  are  discussing. 
As  he  sits  at  his  desk,  on  a  rack  behind  him  hang  the  various 
schedule  control  graphs  for  the  different  machines  on  which  the 
shop  is  working.  At  his  desk  are  a  series  of  files  which  serve  to 
represent  the  different  machines  in  the  shop.  These  files  are 
really  nothing  more  nor  less  than  the  production  board  in  the 
booth,  which  was  described  in  Chap.  VIII  with  changes  to  meet 
the  changed  conditions. 

Here  we  have  four  pockets  for  each  machine.  The  first 
pocket  is  for  work  that  is  to  be  run;  that  is  work  scheduled  but 
not  yet  released  into  the  shop.  The  second  is  for  work  which  is 
in  the  department.  The  third  is  for  work  at  the  machine.  The 
fourth  is  for  jobs  which  have  been  released  to  the  booth  in  the 
shop. 

Note  here  the  difference  between  the  use  of  the  Warner  Gear 
production  board  in  the  shop  and  the  production  board  in  this 
shop  in  regards  to  the  scheduling  of  the  work  in  the  department 
and  the  work  in  the  machine  pockets.  The  tickets  in  three  of  the 
pockets  have  not  yet  been  sent  into  the  shop,  but  are  kept  in  the 

8 


114      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

central  planning  department.  The  fourth  pocket  simply  shows 
the  jobs  that  have  been  released  to  the  shop.  It  does  not  show 
whether  the  jobs  are  running  or  not,  but  merely  the  jobs  that  can 
be  best  assigned  to  the  different  machine  tools  by  the  foreman. 

The  Production  Board. — Let  us  see  how  the  production  depart- 
ment controls  one  part  through  the  shop  by  following  its  records 
through  the  various  stages. 

Service  cards,  requisitions,  in  slips,  move  orders  and  routings 
are  prepared  in  advance,  just  as  they  were  for  the  repetitive 
shop  described  in  Chaps.  VII  and  VIII.  Also  in  the  central 
control  there  is  a  file  of  requisitions  to  be  issued.  The  jobs  are 
written  up  in  advance,  the  requisitions,  in  slips,  etc.,  are  filed 
by  manufacturing  order  number  and  in  turn  by  part  number 
under  manufacturing  order  number.  These  are  withdrawn  from 
this  file  and  placed  in  the  second  pocket  as  the  date  shown  on 
the  schedule  control  graph  draws  near.  When  the  date  itself 
actually  arrives,  the  production  manager  turns  over  to  the  booth 
man  the  file  of  requisitions  actually  to  be  issued  and  draws  out 
the  two  copies  of  the  requisition  from  the  requisitions  to  be 
issued,  by  file. 

The  booth  man  files  all  of  these  under  the  heading  of  the 
machine  which  performs  the  primary  operation.  As  he  sees  that 
his  machine  is  beginning  to  run  out  of  work,  he  places  the  requisi- 
tion on  the  move  board  and  draws  from  the  stores  the  material, 
landing  it  at  the  machine  which  performs  the  primary  operation. 
The  copy  of  the  requisition  is  then  returned  to  the  booth  and 
from  there  is  returned  to  the  central  control.  The  central 
control  can  then  move  the  service  cards  for  that  particular  piece 
forward  into  the  work  at  the  machine  pocket. 

On  the  service  cards,  the  estimated  time  of  the  jobs  is  noted, 
and  on  the  edge  of  the  fourth  pocket,  evenly  spaced  marks  are 
placed,  indicative  of  2-hour  periods.  A  movable  pointer  is 
arranged  to  indicate  any  mark,  which,  shows  the  number  of 
hours  work  ahead  of  a  given  machine  or  group  of  machines  in  the 
shop.  As  work  is  completed,  the  pointer  is  moved  back  so  that 
by  a  glance  at  the  board,  the  production  man  can  ascertain  how 
many  hours  work  are  ahead  of  any  machine. 

When  a  Job  Is  Completed. — As  the  jobs  are  completed  in  the 
shop,  the  service  cards  are  returned  to  the  central  control  man, 
who  releases  to  the  booth  the  corresponding  ticket  in  the  fourth 
pocket  and  moves  back  his  pointer  to  the  number  of  hours  shown 


PLANNING  IN  THE  JOBBING  SHOP 


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116      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

as  standard  on  the  return  job  ticket.  It  is  easy  to  see  that  by 
following  the  pointer  carefully  and  releasing  the  tickets  to  the 
booth  as  required  by  the  schedule  control,  the  booth  man  can  at 
any  time  see  how  much  work  there  is  ahead  of  any  machine  or 
group  of  machines. 

There  is  a  distinct  difference  between  the  production  board  in 
the  booth  in  this  type  of  shop  from  that  in  the  Warner  Gear  Co., 
as  the  booth  in  the  latter  has  only  two  pockets,  one  being  used 
for  jobs  ahead  of  the  machine,  and  the  other  for  work  on  the 
machine.  The  reason  for  this  is  that  no  jobs  are  released  to  the 
booth  until  the  jobs  are  actually  at  the  machine. 

A  careful  study  of  the  chart,  Fig.  54,  illustrating  the  various 
moves  of  the  service  cards,  in  slips,  requisitions,  etc.,  will  show 
that  means  are  provided  for  telling  just  where  each  job  is  in  the 
shop;  that  is,  from  the  file  of  requisitions  issued,  pieces  in  process 
and  pieces  completed,  we  can  tell  just  the  status  of  any  given 
piece  in  the  assembly. 

The  Difference  in  Methods. — The  main  difference  between  this 
method  of  planning  and  that  described  in  Chaps.  VII  and  VIII  is 
that  the  central  control  has  a  much  closer  relation  to  the  shop 
and  there  is  not  the  same  attempt  made  to  line  up  the  work  so 
far  in  advance.  After  the  service  cards  for  the  different  opera- 
tions have  been  returned  to  the  central  control,  the  performance 
is  noted  on  the  schedule  control  chart  card  just  as  in  the  case  of 
the  Warner  Gear  Co.  and  the  same  information  as  to  the  standing 
of  our  job  can  be  read  from  it.  This  same  method  is  adapted 
whether  you  are  making  a  complete  conveyor,  a  single  piece,  or 
any  number  of  pieces.  It  is  particularly  useful  where  work  is  not 
repetitive  except  at  extremely  long  intervals,  and  where  the 
parts  are  coming  through  the  shop  in  small  quantities. 

We  would  suggest  also  that  there  should  be  maintained  as  an 
executive  record,  Fig.  55,  the  accomplishment  chart,  which 
shows  at  a  glance  what  percentage  of  the  labor  estimated  has  been 
performed  upon  each  piece.  This  would  naturally  be  derived 
by  drawing  in  the  total  number  of  hours  required  for  each  piece 
and  then  as  the  work  is  completed,  drawing  the  line  from  left 
to  right,  indicating  the  percentage  of  the  estimated  time  that  had 
been  expended  upon  the  piece  in  question.  The  value  of  this 
record  is  that  it  serves  at  a  glance  to  show  the  executive  how  the 
various  orders  are  coming  through  the  shop. 

It  will  be  seen  that  the  job  shop  depends  for  its  information  on 


PLANNING  IN  THE  JOBBING  SHOP 


117 


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x 


118      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

a  system  of  filing  rather  than  on  a  system  of  written  records. 
This  again  is  governed  by  the  fact  that  the  job  that  is  done  today 
may  not  be  done  again,  so  that  it  would  be  extremely  foolish  to 
set  up  the  elaborate  type  of  records  that  are  essential  to  the 
repetitive  shop.  In  this  way  considerable  clerical  labor  is  saved 
and  it  brings  down  the  planning  and  production  force  to  the 
minimum  amount  of  clerical  help. 

Means  of  Communication. — Because  there  must  be  such  close 
contact  between  the  central  planning  department  and  the  shop, 
we  recommend  the  use  of  pneumatic  tubes.  Another  very 
practical  method  of  sending  the  service  cards  back  and  forth 
between  the  central  control  and  the  different  points  desired  to  be 
reached  in  the  shop,  is  the  old  style  hollow  rolling-ball.  Barring 
these  mechanical  conveyors,  an  efficient  messenger  service  will 
have  to  be  established,  but  this  should  prove  no  drawback  as  any 
boy  or  girl  at  low  cost  can  perform  this  function,  if  closely  super- 
vised. 

It  is  readily  seen  that  the  principles  and  methods  of  planning 
are  fundamentally  the  same,  whether  the  shop  be  on  repetitive 
production  or  job  orders.  In  both,  the  way  must  be  smoothed 
for  the  work,  definite  knowledge  must  be  available  as  to  when, 
how,  and  what  to  make,  and  finally  close  contact  with  the  shop 
must  be  maintained. 

The  principal  differences  between  the  two  kinds  of  planning 
lie  in  the  closeness  of  control  and  the  length  of  time  the  work 
can  be  planned  ahead. 


CHAPTER  X 
THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY 

Time  studies  are  commonly  thought  of  only  as  a  guide  in 
setting  piece  rates.  Certainly  that  is  the  principal  use  to  which 
they  are  put,  but  those  concerns  which  have  dug  deep  into  the 
science  of  management  realize  that  this  is  but  one  of  their  many 
uses.  Frequently  there  are  conditions  which  prevent  the  adop- 
tion of  piece  rates  on  work  which  is  otherwise  admirably  fitted 
to  that  method  of  payment.  That  'should  not  deter  the  manage- 
ment from  profiting  by  the  betterments  which  accurate  time 
studies  often  show. 

Uses  of  Time  Studies. — The  wide  scope  of  these  betterments 
is  indicated  by  the  following  list.  Each  one  has  been  achieved 
in  many  machine  shops.  Time  studies,  then,  may  be  used  to: 

(I)  Set  just  standards  of  production;  (2)  determine  the  most 
efficient  size  of  gang;  (3)  detect  the  inefficient  use  of  machines; 

(4)  indicate  that  a  present  operation  should  be  subdivided; 

(5)  indicate  that  two  or  more  of  the  present  operations  should  be 
combined;    (6)    determine  the  efficiency  of  supplies  and  tools; 
(7)  show  whether  new  machines  would  be  more  economical;  (8) 
standardize  the  best  shop  practice;  (9)  determine  the  best  loca- 
tion of  work  and  tools;  (10)  show  how  fatigue  may  be  reduced; 

(II)  improve  the  design  of  tools,  jigs  and  fixtures;  (12)  detect 
improper  handling  in   previous   operations;    (13)    indicate   the 
possibility  of  using  wage  incentives;  (14)  set  piece  rates;  (15) 
determine  the  best  arrangement  of  machines;  (16)  get  equipment 
into  balance;  (17)  test  the  fitness  of  the  man  to  the  work;  (18) 
show  up  faulty  planning  and  management. 

When  one  realizes  the  many  uses  to  which  time  studies  may  be 
put,  it  becomes  apparent  that  the  greatest  care  is  warranted  in 
getting  accurate  studies.  It  would  be  a  dangerously  broad 
statement,  perhaps,  to  say  that  most  time  studies  are  seriously 
inaccurate ;  yet  we  have  seen  so  much  labor  trouble  and  restric- 
tion of  production  traceable  to  this  fault  that  we  believe  that 
accuracy  is  rare.  Inequitable  piece  rates  set  upon  inaccurate  time 
studies  act  as  an  incentive  to  soldiering  rather  than  to  production. 

119 


120      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

The  workers  themselves  are  usually  the  first  ones  in  a  plant 
to  realize  that  rates  are  carelessly  set.  Too  high  a  rate  restricts 
production,  for  experience  has  taught  the  workers  that  a  hastily 
set  rate  will  be  just  as  hastily  cut,  if  they  show  it  up  by  making 
high  earnings  on  it. 

A  case  in  print  is  that  of  a  manfacturer  who  recently  sought  to 
iron  out  labor  unrest  in  his  plant.  A  few  talks  with  individual 
workmen  showed  that  they  felt  the  piece  rates  to  be  unjust. 
More  than  a  hundred  test  time  studies  made  among  workers  of 
the  same  grade  showed  up  a  surprising  range  in  the  amount 
that  could  be  earned  by  the  same  person  on  various  job.  One 
man  had  a  job  on  a  Tuesday  at  which,  by  working  industriously, 
he  could  earn  $2.85  a  day;  on  Wednesday  he  had  a  job  that  would 
have  paid  him  $8.46 — if  he  had  dared  to  work  hard  enough  to 
earn  it.  And  yet  the  management  claimed  that  the  rates  had 
all  been  set  on  time  studies  and  brought  forth  the  alleged  time 
studies  in  proof.  They  were  far  from  being  real  studies;  typical 
was  the  one  which  simply  noted  that  Operation  3  on  part  L47AB 
had  consumed  84  seconds  when  performed  by  a  good  workman. 
Without  further  study  to  see  if  the  methods  of  performing  the 
various  sub-operations  could  be  improved,  and  with  no  knowl- 
edge of  the  relative  skill  of  the  man,  this  was  set  as  the  standard. 

Over-all  Times  Are  Dangerous. — That  exemplifies  the  com- 
monest fault  in  most  time  studies;  which  is  to  take  an  over-all 
time.  To  be  a  study  on  which  fair* rates  and  constructive  better- 
ments can  be  based,  each  part  of  an  operation  must  be  segregated 
and  studied.  Anything  less  cannot,  except  by  courtesy,  be 
called  a  study.  In  fact,  the  taking  of  time  studies,  especially  in 
a  machine  shop,  requires  a  scientific  approach.  That  does  not 
mean  that  it  requires  a  laboratory  scientist  and  so  is  beyond  the 
abilities  of  a  foreman  or  even  of  a  bright  clerk.  Nearly  every 
shop  contains  a  half  dozen  men  who  in  a  few  weeks  can  be  trained 
to  take  time  correctly,  but  it  is  essential  that  they  thoroughly 
understand  the  problems  involved  and  be  taught  the  scientific 
methods  of  making  their  observations  and  studies.  It  is  our 
purpose  to  give  the  information  that  a  student  will  need.  In 
Fig.  55  A  is  shown  the  method  of  taking  time,  on  a  semi-auto- 
matic lathe. 

Theoretically,  it  would  be  possible  to  set  rates  with  over-all 
studies  only.  But  this  would  require  that  we  have  in  the  shop  a 
workman  whose  skill  could  be  reckoned  at  100  per  cent,  whose 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      121 

conscientiousness  could  be  relied  upon,  and  the  detail  of  whose 
procedure  could  be  reduced  to  the  most  efficient  basis.  Unfor- 
tunately, these  conditions  can  rarely  be  obtained  in  conjunction. 
It  is  therefore  necessary  to  develop  the  standard  time  per  opera- 
tion from  the  performance  of  such  workmen  as  may  be  available. 
Why  Time  Varies  from  Standard. — Analysis  shows  that  the 
time  of  the  ordinary  workman  will  vary  from  standard  because 
of  three  reasons : 


FIG.  55A. — Making  a  time  study  of  work  on  a  semi-automatic  lathe. 


First,  the  wrong  tools,  speeds  and  feeds  may  be  used  on  an 
operation.  If  those  already  in  use  are  improper,  that  fact  will 
be  readily  apparent  when  the  cutting  time  is  isolated.  After  the 
correct  tools,  speeds  and  feeds  are  substituted,  they  can  be  timed. 

Second,  nearly  every  operator  will  throw  in  a  few  or  many 
needless  motions  or  activities.  If  the  operation  be  analyzed  in 
careful  detail,  those  elements  which  are  unnecessary  and  which 
therefore  a  highly  skilled  worker  would  omit  can  be  omitted  in 
the  standard,  even  though  they  have  persistently  recurred  in  the 
observed  operations;  frequently,  for  instance,  it  will  be  found 
that  several  operators  take  three  cuts  to  remove  a  given  amount 
of  stock  when  the  time  studies  show  that  two  cuts  should  be 
sufficient.  The  time  consumed  in  the  third  or  superfluous  cut 
is  of  course  dropped  from  the  standard. 


122     PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Thirdly,  no  man  will  work  at  an  absolutely  uniform  rate 
throughout  all  the  stages  of  an  operation,  no  matter  how  uniform 
his  time  for  the  complete  operation  may  run.  Therefore,  if  we 
take  horizontal  sections  through  a  series  of  operations,  we  can 
build  up  a  standard,  from  the  sum  of  recurring  minima  in  the 
progressive  stages. 

As  a  case  in  point,  suppose  the  task  be  " burring  corners" 
on  a  small  collar.  The  performances  making  up  the  operation 
may  be:  (1)  Chucking  the  part;  (2)  picking  up  the  scraper  and 
breaking  the  corner;  (3)  removing  the  part  from  the  chuck  and 
returning  it  with  the  opposite  side  outward ;  (4)  burring  the  second 
side;  (5)  removing  the  part  from  the  chuck,  laying  it  aside  and 
picking  up  a  new  part. 

Every  part  must  submit  to  all  five  of  these  performances  on  its 
way  to  completion.  If  the  time  on  all  of  the  above  performances 
be  taken  separately  and  charted,  it  will  be  found  that  even  if 
the  over-all  times  be  uniform  it  takes  the  operator  less  time  to 
chuck  the  part  in  some  instances  than  it  does  in  others.  Again, 
we  would  very  likely  find  that  the  burring  time  will  vary  apprecia- 
ably  not  only  for  different  collars,  but  for  the  two  sides  of  a  single 
collar.  Never  mind  what  causes  the  difference;  it  may  be  the 
material  or  it  may  be  the  workman.  In  building  up  a  standard 
we  pick  out  for  each  performance  the  lowest  time  that  recurs 
with  any  frequency,  and  adopt  it  as  the  probable  average  of  a 
100  per  cent  workman — in  other  words,  as  a  standard. 

A  Standard  of  Production. — The  devisers  and  upholders  of 
various  methods  of  wage  payment,  have  indulged  in  endless 
arguments  as  to  just  what  constitutes  a  " standard"  of  produc- 
tion. In  this  discussion  of  time  study  and  of  the  standards  set 
from  them  we  consider  a  standard  as  that  amount  of  production 
which  a  skilled,  conscientious  workman  can  easily  attain  when 
working  with  the  proper  tools  and  by  the  methods  as  laid  down 
for  him.  The  standard  time  is  conversely,  the  time  taken  by 
that  man,  under  those  conditions  to  perform  the  operation  on  a 
single  piece. 

The  Performance. — It  has  already  been  said  that  taking  the 
overall  time  of  an  operation  cannot  be  relied  upon  to  give  an  accu- 
rate standard.  In  the  foregoing  description  of  the  three  factors 
that  enter  into  a  standard  it  is  apparent  that  the  faults  of  the 
workmen  can  only  be  uncovered  by  taking  detailed  studies. 

The  only  way  that  an  operation  can  be  properly  studied  is  to 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      123 

break  it  up  into  its  component  performances  and  take  times  on 
each.  It  is  a  fundamental  rule  of  scientists  who  are  attacking  a 
problem  to  break  the  complex  problem  up  into  its  simplest  ele- 
ments; these  simple  problems  can  then  be  minutely  studied  and 
easily  solved,  and  the  complex  problem  is  thus  solved. 

Each  division  of  the  whole  problem  is  often  known  as  an 
"element"  or  elementary  time  but  we  prefer  to  use  the  word 
" performance'7  as  being  a  little  more  descriptive.  Thus,  each 
operation  is  made  up  of  several  performances.  In  minute 
motion  analysis  it  might  be  possible  to  break  up  a  performance 
still  further  but  for  most  practical  time  study  work  we  consider 
the  performance  as  indivisible. 

Therefore,  the  first  step  in  making  time  studies  is  to  analyze 
the  operation  into  its  recurring  stages  or  " performances'7  which 
will  be  found  with  a  little  practice,  to  be  easy.  The  "burr 
corners"  operation  on  a  small  collar,  given  above,  is  typical. 
As  an  illustration  of  straight  machine  work,  consider  what  must 
be  done  in  broaching  the  keyway  in  a  small  gear.  On  each 
part  the  performances  are  found  to  be:  (1)  Pick  up  a  new  part 
from  the  table;  (2)  raise  the  part  and  lower  it  over  the  broach; 
(3)  pick  up  the  arbor  and,  fitting  the  slot  over  the  broach,  inset 
the  arbor  within  the  gear;  (4)  throw  on  the  power  and  make  a 
cut,  meanwhile  applying  oil  to  the  cutter  from  the  oil  can;  (5) 
take  part  and  arbor  off  the  table  and  remove  the  arbor,  with  the 
other  hand  return  the  finished  part  to  the  conveyor  and  take 
therefrom  another  part  and  place  it  on  the  table;  (6)  shut  off 
the  power,  as  the  broach  by  this  time  has  reached  the  top  of  its 
stroke,  and  clean  off  the  chips  preparatory  to  mounting  the  new 
part.  It  will  be  found  that  the  operator  duplicates  the  above 
performance  every  time  he  broaches  a  keyway. 

The  time  study  man  then  lists  these  performances  and  secures 
10  sets  of  isolated  times  on  each  of  them  which  will  add  up  to  a 
total  time  for  the  complete  process  of  broaching  a  keyway. 
Then  he  notes  the  speed  and  feed,  and  if  they  are  not  correct 
makes  the  needed  correction. 

Studying  Performances. — Next  he  will  study  each  performance 
in  turn  to  determine  whether  or  not  it  contributed  to  the  result. 
If  it  did  not,  it  is  eliminated  in  setting  the  standard.  Finally,  he 
studies  the  actual  times  for  each  performance  and  selects  the 
lowest  recurring  figure  as  standard. 

In  analyzing  an  operation  into  its  constituent  performances, 


124      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

it  is  necessary  to  be  guided  by  the  complexity  of  the  operation;  the 
duration  of  the  complete  operation;  the  proportions  of  machine 
time  and  hand  time;  and  the  variation  in  design  of  the  part  and  of 
other  similar  parts  to  which  results  of  the  study  may  be  extended. 

There  may  be  any  number  of  preformances  from  three  up; 
and  the  time  of  each  performance  may  vary  from  a  fraction  of  a 
second  to  several  thousand  seconds. 

The  general  rules  governing  performances  are  that  the  longer 
an  operation  is  in  total,  the  longer  is  it  permissible  for  the  indivi- 
dual performances  to  be;  and  the  more  complex  the  operation 
becomes,  the  greater  will  be  the  number  of  performances.  If 
the  performance  is  a  simple  one  requiring  hand  time  throughout, 
the  first  two  factors  influencing  the  standard  are  commonly 
absent,  and  three  or  four  performances  may  give  sufficient  detail 
to  take  care  of  the  third  factor. 

The  points  of  division  between  performances  are  indicated  by 
the  nature  of  the  processes;  and  marked  natural  points  of  division 
should  always  be  watched  for  even  though  the  simplicity  of  the 
operation  and  its  short  duration  might  on  the  surface  indicate  that 
they  could  be  ignored.  Continuous  cuts  and  other  continuous 
process  are  not  ordinarily  divided;  therefore,  out  of  two  opera- 
tions requiring  a  given  time,  that  which  has  the  largest  machine 
time  concentrated  in  a  few  performances  will  ordinarily  have  the 
smaller  total  number  of  performances.  An  operation  consisting 
of  hand  time  throughout  will  ordinarily  be  divided  into  a  greater 
number. 

How  Design  Affects  Study. — The  design  of  the  parts  also  has 
an  effect  upon  the  analysis.  For  instance,  the  original  analysis 
of  the  performances  involved  in  milling  squares  on  shafts  divided 
the  body  of  the  study  into  successive  performances  of " cut" 
and '"turn  part."  The  latter  performance  comprised  lowering 
the  table  of  the  milling  machine  to  the  original  position  for  begin- 
ning a  cut  and  then  turning  the  part  to  present  the  next  side  for 
cutting.  When  we  attempted,  from  this  study,  to  derive 
standards  for  shafts  of  different  sizes,  we  found  that  the  variation 
in  cutting  time  due  to  the  variable  length  of  the  square  could  be 
readily  calculated.  But  the  time  required  to  lower  the  table 
for  new  sizes  of  squares  could  not  be  deduced  because  the  per- 
formance "turn  part"  consists  of  variable  time  for  "lower 
table"  plus  a  constant  time  for  "turn  part,"  each  part  regardless 
of  its  size,  being  turned  through  an  angle  of  90  degrees. 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      125 


Accordingly,  it  was  necessary  to  take  additional  studies  in 
which  the  original  performance  "turn  part"  was  split  up  into  two 
performances,  "lower  table"  and  "turn  part."  This  simple 
illustration  shows  how  design  affects  the  methods  of  study. 


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FIG.  56. — A  typical  time  study  record. 

The  analysis  which  portrays  an  operation  should  be  clean  cut 
enough  to  make  any  performance  interchangeable  with  the 
corresponding  performance  in  another  operation.  This  requires 
that  each  performance  be  rigidly  defined  not  only  as  to  what  is 
done,  but  as  to  the  precise  moment  when  the  performance  ends. 
Accordingly,  in  the  time  study  analysis  as  shown  in  Fig.  56, 
two  columns  are  provided,  the  one  headed  "performance,"  the 
other  headed  "stopping  point." 

When  to  Stop. — While  the  nature  of  the  performance  is  given 
by  the  performance  name,  the  points  at  which  the  stop  watch 
is  to  be  started  and  stopped  are  given  by  the  stopping  point. 
It  is  the  stopping  point  and  not  the  operation  name  which  secures 
the  desired  interchangeability.  It  is,  therefore,  important  that 
the  stopping  points  should  be  outstanding  events  in  the  progress 


126      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

of  the  part  and  they  should  be  so  chosen  that  a  variation  in  the 
operator's  procedure  cannot  alter  their  essential  character. 
Where  possible,  they  should  be  not  only  visible  but  audible; 
an  audible  snap,  such  as  that  made  when  the  automatic  feed  is 
tripped  on  a  milling  machine  is  ideal.  Failing  to  find  audible 
stopping  points,  instants  of  contact  make  good  sharp  stopping 
points.  The  recurrance  of  such  stopping  points  as  "hand  to 
feed,"  "hand  to  wrench/7  "hand  to  new  part"  are  entirely 
satisfactory  and  will  be  found  much  used  in  the  studies  which 
will  be  shown  in  later  chapters. 

Accuracy  depends  upon  choosing  stopping  points  which  are 
sharply  defined,  instantaneous;  and  these  so  far  as  possible  should 
be  made  standard.  For  instance,  we  recommend  that  all  opera- 
tions which  precede  machine  feed  cuts  end  at  the  moment  when 
the  feed  is  thrown  on,  and  that  the  cuts  themselves  end  when  the 
feed  is  thrown  off.  These  two  points  are  always  clearly  recogniz- 
able. They  limit  the  observed  interval  of  the  cutting  operation 
to  the  time  when  the  feed  is  on,  and  thereby  facilitate  the  con- 
sideration of  feed  and  speed  in  arriving  at  the  standard,  and  also 
make  it  easy  to  compare  corresponding  studies.  Similarly,  the 
stopping  of  the  last  performance  at  "hand  to  new  part"  is  recom- 
mended, since  it  gives  evidence  that  the  cycle  of  performances 
covers  a  complete  operation  which  may  be  multiplied  indefinitely 
for  any  number  of  parts. 

The  manner  of  making  an  analysis  will  depend  upon  the 
complexity  and  duration  of  the  operation.  On  short  operations, 
the  operator  will  almost  always  be  found  to  work  with  a  definite 
rhythm  which  the  observer  can  readily  sense  and  on  which  he 
can  base  his  analysis. 

If  the  operations  are  long  and  complicated,  the  sequence  of 
performances  may  be  difficult  to  determine.  In  such  a  case,  the 
observer  will  begin  an  operation  at  his  standard  point  "hand  to 
new  part;"  and  thereafter  follow  it  through  for  one  part,  setting 
down  in  detail  each  performance  that  the  operator  makes.  The 
observer  will  then  lay  the  record  aside  and  proceed  to  record  the 
performances  on  another  part.  It  may  be  advisable  to  make  a 
half  dozen  or  so  independent  observations.  After  securing  the 
proper  number  of  detailed  records  of  performances,  those  per- 
formances which  persistently  recur  in  all  of  the  operations  will 
comprise  the  analysis,  the  others  being  thrown  out  as  unessential. 
In  using  this  method,  it  is  necessary  that  the  observer  be  very 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      127 

alert,  and  carry  in  his  memory  the  stopping  points  which  he  has 
previously  used  on  similar  performances,  so  as  to  make  the  differ- 
ent performances  interchangeable  when  the  analysis  is  compiled. 
Here  is  one  place  where  the  advantage  of  a  standard  stopping 
point  is  apparent. 

Rarely  will  an  operator  continue  through  a  series  of  operations 
without  interruptions  or  intermissions.  On  a  short  operation, 
the  operator  is  apt  to  seek  relief  from  the  strain  of  continuous 
application  by  taking  short  intermissions  between  parts.  On  a 
long  operation  the  intermissions  will  naturally  occur  during  the 
progress  of  the  operation.  In  either  event,  this  lost  time  must  be 
eliminated  from  the  study.  The  completed  study  should  ordi- 
narily contain  only  the  time  for  productive  performances. 

However,  unless  the  interruptions  have  clearly  nothing  to  do 
with  the  processing,  the  observer  should  not  attempt  on  snap 
judgment  to  eliminate  them.  If  he  is  working  from  a  fixed 
analysis,  he  should  make  foot-notes  showing  where  the  lost  time 
comes  in  and  what  it  is  used  for;  if  he  is  recording  the  running 
story  of  the  operation,  he  should  describe  just  what  occurred. 
This  will  enable  him  to  study  the  matter  after  the  analysis  is 
complete  and  determine  whether  the  times  marked  "lost"  should 
be  accounted  for  in  the  standard. 

How  to  Handle  Lost  Time. — Lost  time  which  is  the  result  of 
fatigue  or  of  attention  given  the  tools  is  usually  eliminated  from 
the  analysis  for  it  is  taken  into  account  in  another  way  which 
will  be  described  in  a  future  chapter.  Sometimes,  however, 
interruptions  are  accounted  for  in  the  standard  as  in  a  certain 
operation  on  a  milling  machine.  In  this  operation,  the  analysis 
of  the  productive  performance,  showed  that  lost  time  which 
regularly  occurred  at  the  end  of  the  cuts  was  unavoidable  because 
it  was  due  to  the  fact  that  the  operator  attended  two  machines 
at  once. 

Time  is  often  lost  by  throwing  in  the  feed  in  advance  of 
contact  between  tool  and  part,  and  by  permitting  the  feed  to 
continue  after  the  tool  has  cleared  the  cut.  If  the  standard 
stopping  points  "feed  on"  and  "feed  off"  are  used,  the  time 
observed  will  not  represent  the  actual  cutting  time.  The  way 
to  handle  this  in  a  time  study  is  to  set  the  starting  point  of  the 
cut  at  the  instant  of  contact  between  tool  and  part,  and  the 
finish  at  the  moment  of  clearance  and  show  the  two  periods  when 
the  tool  is  "cutting  the  air"  as  separate  performances  which  are 


128      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

eliminated   from    the  standard.     This  is  done  in   study   403, 
Fig.  56. 

In  a  later  chapter  when  the  setting  of  an  actual  standard  is 
described  in  detail,  further  instances  of  lost  time  and  the  methods 
of  handling  it  will  be  discussed. 

Having  developed  an  analysis  of  the  operation  into  its  standard 
sequence  of  performances,  the  next  step  is  to  observe  the  actual 
elementary  times. 

Two  Kinds  of  Time  Studies. — Time  studies  are  of  two  kinds, 
continuous  and  discontinuous,  depending  upon  the  method  of 
taking  the  observations.  Discontinuous  times  are  the  most 
accurate.  Suppose  an  operation  consists  of  10  performances. 
On  the  first  part  to  be  timed,  the  observer  would  time  perform- 
ances 1,  3,  5,  7  and  9.  He  would  utilize  the  intervals  consumed 
by  performances  2,  4,  6,  8  and  10  to  enter  on  his  time  study  blank 
the  times  taken  by  the  preceding  performances.  Then  on  the 
second  piece  to  go  through  the  operation  he  would  time  perform- 
ances 2,  4,  6,  8  and  10  and  write  them  down  during  performances 
3,  5,  7,  9,  1.  Thus  the  complete  operation  must  be  per- 
formed upon  two  parts  in  order  to  get  one  complete  study.  For 
this  method  a  single  hand  stop  watch  may  be  used,  reading  the 
times  to  fifths  of  seconds.  When  the  complete  observation  and 
its  component  performances  are  short,  and  there  are  plenty  of 
parts  to  be  processed,  by  all  means  use  the  method  of  discontinu- 
ous times  in  order  to  achieve  accuracy.  Then  supplement  them 
by  taking  several  overall  times  for  the  complete  operation  in 
order  to  test  the  accuracy  of  the  discontinuous  times.  Aside 
from  its  accuracy,  the  discontinuous  method  gives  the  observer 
plenty  of  time  to  watch  the  workman  and  take  notes  on  his 
methods  of  work. 

Taking  Continuous  Times. — There  are  cases,  however,  when  it 
seems  best  to  take  continuous  times.  For  this  method  a  watch 
with  two  independent  second  hands  is  required. 

Continuous  times  are  obtained  by  stopping  the  auxiliary  hand 
at  the  first  stopping  point  and  recording  its  reading  while  the 
main  second  hand  continues  round.  After  the  first  performance 
has  been  recorded  the  auxiliary  second  hand  is  released,  permit- 
ting it  to  snap  into  coincidence  with  the  main  second  hand.  It  is 
stopped  again  at  the  conclusion  of  the  succeeding  performance. 
By  this  method  we  secure  the  elapsed  times  for  our  analysis  by 
substracting  the  observed  time  for  each  stopping  point,  from  the 
one  succeeding  it.  Continuous  times  are  of  value  when  the 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      129 

number  of  parts  to  be  observed  is  limited,  since  a  complete  series 
is  obtained  from  each  part  instead  of  from  two  parts.  The  fact 
that  the  overall  time  is  directly  available  from  the  continuous 
time  observations  makes  possible  a  further  saving  of  the  observers 
time.  Where  minute  accuracy  is  not  required  this  method  enables 
complete  studies  to  be  made  in  one  half  the  time  of  a  discontinuous 
study.  On  very  long  operations  this  may  be  well  worth  while. 
On  the  other  hand,  when  the  analysis  is  worked  up,  continuous 
times  demand  considerable  computation  which  discontinuous 
times  save.  A  disadvantage  of  continuous  times  is  that  if  the 
stopping  point  be  carelessly  observed  the  error  will  appear  not  only 
in  the  first  performance  but  in  the  observation  of  the  following 
performance  as  well.  The  observer  will  find  use  for  both  methods. 
The  discontinuous  method  is  recommended  where  it  can  be  used, 
on  account  of  its  greater  accuracy. 

If  two  stop  watches  be  manipulated  at  once,  discontinuous 
times  can  be  obtained,  a  complete  series  from  a  single  part,  but 
to  do  this  accurately  requires  considerable  skill  and  the  practice 
is  not  recommended. 

Authorities  generally  agree  that  10  complete  observations  is 
the  minimum  number  if  the  standards  are  to  be  absolutely  reli- 
able. No  number  less  than  10  will  give  a  proper  separation  of 
the  extremes  from  the  average.  A  study  will  rarely  be  found  in 
which  any  random  four  or  six  operations  will  tell  the  same  story 
that  the  complete  series  of  10  does.  On  the  other  hand,  10  is  a 
number  sufficiently  large  to  reflect  the  variation  in  the  usual 
case.  For  this  reason  the  time  study  form  is  designed  to  accom- 
modate 10,  which  will,  of  course,  not  prevent  using  additional 
sheets  should  circumstances  seem  to  call  for  more  than  10.  When 
the  operator  is  unusually  dilatory,  it  may  be  necessary  to  take  20 
or  more  readings.  The  point  to  be  emphasized  is  that  only  the 
most  exceptional  circumstances  could  justify  basing  a  standard  on 
fewer  than  10  complete  readings. 

Note  if  an  analysis  includes  a  number  of  repetitive  and  identical 
performances  in  a  complete  operation,  that  time  can  often  be 
saved  by  taking  only  10  of  these  performances,  setting  a  standard 
from  them  and  putting  this  standard  into  the  whole  as  many 
times  as  necessary.  In  one  instance  we  recall  that  12  identical 
cuts  were  taken  in  each  operation.  Discontinuous  times  were 
taken  on  only  10  cuts  and  the  standard  secured  from  them  was 
repeated  12  times  in  building  up  the  total  standard. 


130      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Arousing  Workmen's  Interest. — We  have  already  indicated 
how  we  discount  the  effect  of  poor  workmanship  and  intentional 
"  soldiering, "  by  eliminating  high  performance  figures  and  extra 
performances.  Obviously,  the  most  satisfactory  studies  are  those 
in  which  such  defensive  tactics  are  not  needed.  But  only  too 
often  we  find  that  the  workman  bristles  up  at  the  first  glimpse  of 
a  stop  watch.  It  is  a  tradition  that  shop  watches  are  invariably 
the  forerunners  of  killing  standards  and  unjust  rates.  While 
not  always  easy,  we  have  found  that  it  is  usually  possible  to 
break  down  his  opposition  by  man  to  man  treatment  and  in 
the  end  secure  his  fullest  cooperation.  In  the  first  place,  criticism 
of  his  workmanship  should  be  very  sparingly  made,  if  at  all,  and 
while  simple  constructive  suggestions  of  an  obvious  sort  can  be 
given  to  him  directly,  in  proportion  as  he  is  brought  into  the 
proper  frame  of  mind  to  receive  them,  most  changes  in  his 
procedure  should  be  brought  about  through  his  foreman. 

This  emphasizes  the  importance  of  first  securing  the  coopera- 
tion of  the  foreman,  with  whom  the  various  operations  should  be 
discussed  in  detail.  He  will  often  be  able  to  supply  valuable 
information  which  the  observer  might  otherwise  miss.  Questions 
from  both  operator  and  the  foreman  about  the  purpose,  scope 
and  method  of  time  study  work  should  be  freely  and  frankly 
answered.  Both  should  be  allowed  to  see  the  study.  It  is 
surprising  how  intelligent  an  interest  most  workmen  will  take 
when  they  once  see  and  understand  the  studies. 

It  is  very  important  that  all  conditions  affecting  the  perform- 
ance should  be  noted  down  in  the  rough  notes.  These  will 
ordinarily  include  any  data  bearing  on  the  condition  and  state 
of  repair  of  the  machine,  the  condition  of  the  belt,  and  so  on. 
Nothing  relevant  should  be  left  to  memory;  because  while 
memory  may  perhaps  be  relied  upon  for  making  of  the  finished 
study,  it  cannot  reliably  decide  a  controversy  that  may  grow 
out  of  the  study  some  weeks  after  it  is  made.  Rough  notes 
should  be  carefully  filed  for  reference. 

How  Time  Studies  Are  Made. — The  enthusiastic  observer  is 
usually  tempted  to  recommend  many  changes  which  will  obvi- 
ously save  time.  Such  savings  -may  be  made  by  changing  the 
position  of  the  conveyor,  the  manner  of  grasping  the  part,  place 
in  which  the  wrench  is  laid  down,  and  so  on.  This  is  entirely  a 
matter  of  proportion.  Saving  of  5  seconds  per  part  brought 
about  by  an  improved  method  of  picking  up  the  parts  would  be 


THE  FUNDAMENTALS  OF  CORRECT  TIME  STUDY      131 

well  worth  while  on  a  burring  operation  requiring  only  30  seconds 
per  part,  whereas  it  would  hardly  repay  the  time  spent  in  devis- 
ing it  on  a  milling  operation  requiring  1,000  seconds;  and  a  saving 
of  50  seconds  would  be  worth  while  on  the  1,000  seconds  opera- 
tion, but  not  on  an  operation  requiring  8,000  seconds.  If  an 
appreciable  saving,  and  one  within  the  limits  of  accuracy  with 
which  the  standards  are  set,  can  be  made  by  giving  thought  to 
such  details,  it  should  by  all  means  be  made. 

Here  it  seems  well  to  give,  for  the. benefit  of  the  novice,  con- 
crete instructions  as  to  what  steps  the  time  study  man  goes 
through  in  taking  his  observations. 

They  are  in  the  order  given: 

First,  he  calibrates  his  watch,  that  is,  allows  it  to  run  for  a  quarter  of  an  hour 
and  checks  it  against  some  reliable  timepiece.  If  the  error  is  but  slight, 
it  need  not  be  regulated.  If  the  error  runs  1  or  2  per  cent,  the  watch  should 
be  regulated. 

Second,  with  his  board,  time  study  blanks  and  watch  in  their  proper  places 
he  goes  to  the  operation  or  part  to  be  studied. 

Third,  standing  by  the  machine  or  operator  at  a  sufficient  distance  not  to 
interfere  with  the  man's  work  he  very  likely  will  ask  the  workman  a  few 
questions  bearing  on  the  work.  He  should  be  standing  close  enough  and  in 
such  position  that  all  movements  of  the  workman  can  be  seen. 

Fourth,  after  2  to  10  minutes,  he  puts  his  board  in  position  and  makes  all 
notes  as  to  location  of  work,  size  and  dimensions  of  piece,  size  of  cuts  to  be 
taken,  operation  to  be  performed,  and  tools  which  are  used  on  the  job. 

Fifth,  after  making  these  notes,  he  decides  what  elements  or  performances 
make  up  the  operation.  Usually  he  will  not  be  able  to  determine  all  of  these 
performances  at  once,  but  he  will  put  down  the  first  element  with  its  stopping 
point,  the  next  element  with  its  stopping  point  and  so  on.  During  this 
time,  he  has  not  started  his  watch. 

Sixth,  when  the  elements  have  been  listed,  he  starts  his  watch  and  makes 
the  readings,  either  by  continuous  or  by  discontinuous  times.  During 
the  readings  he  should  note  any  inefficiencies  which  his  times  may  show 
and  carefully  detail  these  on  the  time  study  sheet. 

Seventh,  after  taking  the  study,  he  returns  to  his  office  or  to  some  work 
table  and  writes  up  his  study  carefully.  He  also  finds  the  number  of  the 
man  who  is  performing  this  operation,  with  his  rate  and  experience. 

These  instructions  cover  the  most  common  cases  where  observations  are 
of  a  repeating  operation.  If  only  one  part  happens  to  be  going  through, 
he  must  be  at  his  machine  to  make  all  the  preliminary  investigations,  such  as 
where  the  piece  is  placed,  the  tools  used  and  so  forth  before  the  part  is  to  be 
operated  on.  Also,  he  must,  in  this  case,  develop  his  elements  at  the  time  that 
he  is  taking  his  readings.  It  obviously  needs  a  man  of  greater  experience 
to  take  continuous  studies  on  a  single  part  than  when  the  operation  is 
frequently  repeated. 


CHAPTER  XI 
SETTING  THE  STANDARD 

While  it  is  essential  to  understand  the  fundamentals  of  time 
study  work  which  were  described  in  general  terms  in  the  preced- 
ing chapter,  nothing  will  give  a  clear-cut  idea  of  the  procedure 
in  setting  standards  like  a  minute  description  of  how  an  actual 
standard  was  set. 

Setting  Standards. — In  Figs.  57  and  58  are  shown  time 
studies  107  and  380,  showing  the  "mill  radius"  operation  on  a 
part  we  will  call  LU75ABR. 

After  a  few  operations  had  been  observed,  it  was  found  that 
the  operation  could  be  analyzed  into  four  performances,  which 
with  their  stopping  points  are  as  follows: 

PERFORMANCE  No.  PERFORMANCE  STOPPING  POINT 

1  Mount  part  Feed  on 

2  Cut  Hand  to  R.  S.  Crank 

3  Lower  table  Hand  from  R.  S.  Crank 

4  Remove  part  Hand  to  new  part 

This  is  an  example  of  a  short  operation  for  which  the  analysis 
can  be  prepared  in  advance.  Note  the  use  of  the  standard 
stopping  points  "feed  on"  and  "hand  to  new  part."  Sufficient 
parts  are  in  process  to  permit  the  use  of  "discontinuous  times." 
The  observations  taken  on  the  first  operator  are  shown  in  study 
107,  Fig.  57. 

Our  first  point  of  attack,  as  we  saw  in  the  preceding  chapter,  is 
to  check  up  on  the  speeds  and  feeds;  therefore  we  start  the 
standard  setting  with  performance  two  in  which  the  cutting  time 
is  isolated.  The  stopping  point  "hand  to  R.  S.  Crank"  is 
practically  coincidental  with  the  moment  of  thro  wing  off  the  feed, 
and  is  chosen  because  it  is  more  striking  in  this  particular  opera- 
tion. The  cut  took  an  average  of  70|  sec.  at  a  spindle  speed  of 
93  r.p.m.  (which  was  a  cutting  speed  of  91  ft.  per  minute),  and 
a  feed  of  1.59  in  per  minute  measured  on  the  table.  Investigation 
showed  the  speed  and  feed  to  be  entirely  too  slow  for  this  opera- 
tion. It  was  found  that  greatest  economy  called  for  a  spindle 

132 


SETTING  THE  STANDARD 


133 


speed  of  150  r.p.m.,  giving  147ft.  per  minute  with  the  same  cutter, 
and  a  feed  of  2|  in.  per  minute  measured  on  the  table,  which 


o 

SATE    SbStO^Jitf-^XCli  Tiwc..^../?/?lL  STUDY  NO./  <??.  r*m<^*f^ro/herGr-*Xu.?££$, 

MACHINE  No.  ..£&.a..£..?.??:.  R.P.M._  &3L  OPERATION  flJi.M...ffasftM.A  !?.#./&  

MAN  A  *j£Jt'.</.S..I(Of.  RATE....—-  tQOL-3fi../3r.tf..£.fr.jfi*l? 

SKETCH 

MAN  C  -  ~.  RATE....!"T"!  FEED  /;.*£.  £..  

MAN  D  „  HATE  DEPTH  pSf.  

MANC  RATE  MATERIAL.  ...M.jC?.  

MANF  RATE  DEPT  //.  ,  

PERF 

No. 

PERFORMANCE  NAME 

STOPPING  POINT 

PERFORMANCE  TIMES 

REMARKS 

STD 

o 

2 

y 

cr7/ 

"  fram    "  "         " 
'fr^l  «"   Ok&Cir<S<fc( 

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f    *f£     $"•/  9rr</<ff-<f 

o 

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W£$^:&£££Z  ££%*'." 

cf<?;r~f  tSr's><3    (?   S  ~ras>eiet»~cf. 
f-rV9:f   OS   C.Ort'fr-Gt    •/•&"*? 

^"•SY  ~^*<?_J. 

FIG.  57. — Time  study  of  milling  operation. 

would  reduce  the  standard  cutting  time  to  38|  sec. — a  saving  of 
nearly  half.  The  fact  that  the  operator  did  not  use  the  proper 
feed  and  speed — while  it  would  render  the  results  of  a  single 


134     PRODUCTION  ENGINEERING  AND  COST  KEEPING 


over-all  time  observation  entirely  without  value  as  a  standard  — 
did  not  prevent  setting  a  proper  standard  from  the  detailed  time 
study. 


DATE  jSLayqiJLJ&LSi TiME...//>£/»7.:....       STUDY  NO...??.!?.<?.... 

MACHINE  Ho..a.?.^..(^*f.9f.^eA/0.^  H.?M../.*£.$. OPERATION.... 

MAN  A $.?-....&*/&  J.<e?f?.....*KTt ....-—....       gOOL 3j 

MAN  B rT~". RATE  ....tTTT.....       SPEED  ./..&.7...SZ. 

MANC , rrr. RATE  ...T7T?.....       FEED 


........  .??/£/«  ........... 


RATE MATERIAL../?,-?^ - 

RATE  .....          .         DEPT //. 


PERFORMANCE  NAME 


STOPPING  POINT 


PERFORMANCE  TIMES 


Crjnt. 


Or* 


Orvra//  77 


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loo 


fr» 

rrc 


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94 


If 


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/ara&r  metc/i/nts  t+'jere  /f'e-at V£G   Janc. 


:—  0/r/y  /<xcf  */* 


/  Z  fi*r£f  f>ff 


FIG.  58. — Same  operation  as  Fig.  57  but  different  operator. 

Checking  the  study  for  unnecessary  steps,  the  second  factor  in 
setting  standards,  it  is  evident  that  they  all  bore  directly  upon 


SETTING  THE  STANDARD  135 

production,  and  therefore  all  of  them  were  included  in  the 
standard. 

Studying  the  Operator's  Speed. — Study  of  the  third  factor — 
the  speed  of  the  operator — indicates  that  this  man  does  not  work 
at  uniform  speed  throughout  the  operation.  This  is  usually  true, 
but  this  time  study  shows  the  point  unusually  well.  Take 
performance  one  for  instance.  Twice  the  operator  succeeded  in 
accomplishing  this  performance  in  8  sec.,  but  above  that  the  time 
ranges  all  the  way  up  to  16  sec.,  just  twice  as  long.  Had  he 
worked  at  a  uniform  rate  throughout  each  operation,  the  over-all 
time  on  the  ninth  operation  would  have  been  twice  the  over-all 
time  on  the  tenth,  but  this  did  not  prove  to  be  the  case,  for  the 
over-all  times  are  respectively  103f  sec.  and  90|  sec.  Observe 
the  fourth  performance  on  these  same  two  operations.  It  will 
be  noted  that  the  operator  performed  them  in  precisely  the  same 
time,  which  was  the  minimum  time  for  the  fourth  performance, 
notwithstanding  that  the  over-all  time  for  operation  nine  was  the 
maximum  in  the  10  readings. 

The  time  for  performance  one  varies  from  8  to  16  sec.  with  an 
average  of  10%  sec.  As  the  average  is  10  %  sec.,  with  such  a 
variation  there  would  seem  to  be  no  reason  why  we  should  con- 
sider at  all  the  instances  in  which  16,  11,  14  and  12  sec.  are 
required.  The  question  is — if  the  average,  which  includes  the 
abnormally  high  figures,  is  only  lOf  sec.,  should  we,  realizing 
that  the  workman  is  only  fairly  skilled,  allow  as  much  as  lOf  sec. 
for  a  standard  time  to  be  expected  of  a  100  per  cent  workman? 
When  we  consider  that  the  operator  twice  did  the  performance  in 
8  sec.,  did  it  once  in  8|  sec.,  and  once  in  8|  sec.,  it  appears  not 
unreasonable  that  a  skilled  operator  with  a  wage  incentive  should 
mount  his  part  consistently  in  8|  sec.  This  is  therefore  set  as 
the  standard  for  performance  1. 

Using  the  same  method  of  thought  we  set  the  standards  for 
performance  3  at  8  sec.  and  for  performance  4  at  4  seconds. 

The  standard  time  for  the  complete  operation  is  the  sum  of  the 
standards  of  the  individual  performances.  It  amounts  to  59f 
sec.,  whereas  the  average  observed  over-all  time  for  the  operation 
was  94  sec.,  the  minimum,  85  f  sec.  and  the  maximum  103|  sec. 
In  other  words,  the  standard  is  but  little  over  half  the  average 
and  about  70  per  cent  of  the  minimum.  Yet  with  the  method 
we  have  used  we  are  able  to  affirm  with  the  utmost  confidence 
that  59|  sec.  is  the  proper  time  which  this  operation  should  take. 


136      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

An  Example. — It  happened  that  we  had  an  opportunity  to 
make  another  study  on  the  same  operation  with  a  different 
operator,  the  result  of  which  is  shown  in  study  380,  Fig.  58. 
This  operator  had  already  chosen  the  correct  speed  and  feed, 
identical  with  that  which  we  developed  by  proportion  from 
study  107.  Here  is  a  striking  example  of  the  fallacy  of  over-all 
times. 

If  we  had  had  no  other  information  about  the  operation  than 
that  given  by  over-all  times,  we  would  have  concluded  that  94 
sec.,  the  average  of  study  107,  would  have  approximated  the 
proper  standard;  and  this  conclusion  would  have  been  confirmed 
by  the  average  secured  from  study  380 — 94f  sec. — almost  exactly 
the  same.  Analyzed  by  performances,  the  observations  reveal 
an  entirely  different  story.  They  show  that,  on  the  cut,  study 
380  was  almost  twice  as  fast  as  study  107.  The  almost  exact 
coincidence  of  the  over-all  times  was  due  to  the  fact  that,  in  all 
parts  of  the  operation  except  the  cut,  the  operator  of  study  380 
was  almost  three  times  as  slow  as  the  operator  of  study  107. 
They  show  furthermore  that  the  operator  of  study  380  included 
an  extra  non-productive  performance  of  raising  the  table  between 
performances  one  and  two,  which  we  have  called  in  study  380 
performance  1A,  and  which  since  the  107  operator  did  not  use  it, 
is  shown  to  be  unnecessary.  We  have  therefore  dropped  it  in 
computing  the  standard.  The  net  effect  in  this  case  of  taking 
detailed  and  analyzed  observations  discloses  that  even  though 
the  two  operators  on  the  performance  required  identical  over-all 
times,  both  of  these  times  which  checked  so  well  are  nearly  one 
hundred  per  cent  too  high. 

In  this  instance,  we  had  a  problem  in  standard  setting  which 
combined  all  three  of  the  factors.  At  the  other  extreme  we  have 
study  227,  shown  in  Fig.  59,  where  the  operator  was  the  foreman 
for  the  milling  department.  The  operator's  skill  was  great  and 
his  disposition  to  turn  out  as  many  parts  as  he  could  was  rated 
100  per  cent.  Combine  this  with  the  fact  that  the  operation  was 
all  hand  work,  and  we  would  expect  the  over-all  times  to  form  a 
very  reliable  guide  as  to  what  the  standard  should  be.  Observe 
how  very  nearly  this  proved  to  be  true.  The  times  for  the  first 
performance  were  remarkably  uniform;  the  minimum  is  6  sec.; 
the  maximum,  8  sec.;  and  the  average  7|  sec.  In  five  instances 
a  time  of  7  sec.  flat  was  repeated,  which  is  a  remarkably  consistent- 
record.  Compare  the  "mount  part"  performance  with  that 


SETTING  THE  STANDARD 


137 


shown  above  in  study  107  and  note  how  the  increased  skill  of  the 
workman  gave  greater  uniformity.     It  was  not  thought  advisable 


o 


DATE 

MACHINE  No. 
MAN  A 
MANB 

MANC rrr: 

MAND ..._ 

MANE 

MAN  F 


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RATE,. 

RATE.. 

RATE .. 

RATE.. 

RATE. 


•TUDY  No-.^Z./. PART.!? .^/f  .:££?,. 

..3.Z.Q.. OPERATION  .&y.r:f:....f...///.t?.. 


.TTT.....       FEED 


RATE 


MATERIAL 
DEPT /. 


PNoF  PERFORMANCE  NAME 


STOPPING  POINT 


PERFORMANCE  TIMES 


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FIG.  59. — Time  study  of  expert  operator. 

to  expect  of  any  operator  a  performance  more  uniform  than  that 
of  the  observed  workman.  Accordingly  the  average  time  was 
taken  as  the  standard. 


138      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

In  the  second  performance,  the  cutting  time,  a  greater  variation 
occurred,  and  yet  the  times  shown  are  fairly  consistent;  that  is  to 
say,  the  average  is  almost  half  way  between  the  maximum  and 
the  minimum.  Observation  showed  that  this  variation  was 
caused  by  variation  in  the  amount  of  stock  to  be  removed.  The 
standard  on  this  performance  was  set  by  eliminating  the  two 
maxima  and  averaging  the  rest. 

Performance  three  is  remarkably  consistent  in  its  turn.  The 
time,  6|  sec.,  was  repeated  five  times,  but  the  variation  below 
this  average  is  a  little  greater  than  in  performance  one.  Both 
the  third  and  tenth  operations  are  substantially  below  the 
average.  It  was  therefore  thought  proper  to  reduce  the  standard 
slightly  below  the  average  of  performance  three.  The  result  is 
a  standard  of  6£  sec.  comparing  with  an  average  of  6|  sec. 

When  the  total  standard  is  computed,  it  is  found  to  be  30  sec. 
compared  with  30|  sec.  average.  It  develops  that  we  would 
have  been  justified  in  using  the  over-all  average  of  this  operator 
in  fixing  the  standards,  but  we  could  not  have  done  so  with  the 
same  assurance  as  we  are  justified  in  feeling  after  taking  detailed 
times. 

Complications. — Without  actually  reproducing  the  studies,  we 
want  to  cite  some  special  complications  that  have  arisen  in  setting 
other  standards.  Needless  to  say,  it  would  be  impossible  to 
describe  every  difficulty  and  special  case  that  the  time  study  man 
will  run  into.  But  perhaps  typical  instances  will  indicate  the 
method  for  the  more  common  problems. 

A  certain  lathe  operation  consisted  in  tapering  the  end  of  a 
shaft.  The  performances  as  observed  were  (1)  mount  new  part, 
(2)  set  tool,  (3)  first  cut,  (4)  reset  tool;  (5)  second  cut,  (5a)  reset 
tool,  (5b)  third  cut,  (6)  part  out  and  gage,  (7)  dog  off  and  part 
aside.  Two  cuts  were  all  that  were  needed  as  shown  by  the 
fact  that  the  third  cut  was  omitted  by  the  workman  in  three  out 
of  the  10  studies.  The  foreman  and  superintendent  maintained 
that  a  good  workman  could  perform  the  operation  in  a  single 
cut.  To  obtain  accuracy  of  cut  it  was  decided  to  allow  two  cuts, 
but  to  eliminate  the  third  from  the  standard.  The  man  observed 
was  first-class  as  to  skill,  but  unsympathetic  with  our  efforts  and 
anxious  to  inflate  the  standards. 

Another  case  was  the  turning  operation  on  a  heavy  cast-iron 
flange  which  the  workman  performed  in  an  average  of  3,296  sec. 
In  all,  there  were  20  performances,  of  which  performance  (1) 


SETTING  THE  STANDARD  139 

was  secure  new  part,  (2)  insert  arbor,  (19)  remove  arbor,  (20) 
move  part  aside.  These  four  performances  took  on  the  average  a 
total  of  150  sec.  But  the  total  time  taken  up  in  cutting  while 
the  man  was  completely  idle  was  on  the  average  2,300  sec. 
He  was  supplied  with  an  extra  arbor  so  that  he  could  perform 
operations  1  and  2,  during  the  cut  on  the  preceding  part  and 
19  and  20  during  the  cut  on  the  following  part. 

After  study  the  standard  was  set  at  2,690  sec.,  or  nearly  20 
per  cent  lower  than  the  old  average. 

In  another  study,  a  wide  variation  in  the  non-cutting  times 
was  observed.  The  workman  was  reasonably  skilful,  so  the 
variation  indicated  intentional  "  soldiering."  Experience  has 
shown  that  no  workman  can  inflate  his  time  consistently.  Con- 
sistent times,  if  the  method  is  right,  can  usually  be  depended  upon 
to  show  conscientious  effort  on  the  workman's  part.  In  the 
study  under  consideration,  the  times  on  the  "mount  part" 
performance  ran,  in  seconds,  11,  9,  9,  12,  12,  12f ,  10,  11J,  12  and 
11.  The  minimum  time,  9  sec.,  was  taken  as  the  standard.  The 
"part  out"  performance  ranged  from  5|  to  14|  sec.  The 
standard  set  was  again  the  minimum.  Later  trial  of  these 
standards  in  the  shop  failed  to  show  that  they  were  hard  to 
achieve. 

We  cite  these  instances  not  only  to  illustrate  the  actual  setting 
of  a  standard,  but  also  to  indicate  how  the  development  of 
standards  by  time  study  analysis  permits  an  intelligence  higher 
than  that  of  the  ordinary  workman  to  arrive  at  the  proper 
working  time — the  time  which  a  100  per  cent  workman  of  the 
kind  assigned  to  the  work  could  be  expected  to  maintain. 

Setting  a  Proper  Rate. — The  standard  is  not  an  average.  The 
nearest  approach  to  a  rule  that  can  be  given  is  that  the  standard 
may  approximate  the  average  obtained  from  the  observations 
after  the  extremes  have  been  eliminated.  The  proportion  of 
observations  to  be  eliminated  as  extreme  would  then  depend 
largely  upon  the  estimated  skill  of  the  workman.  This  calls 
for  considerable  judgment.  It  is  not  a  safe  rule  to  follow  even 
then,  for  we  have  just  seen  that  sometimes  the  standard  is 
brought  down  to  the  minimum.  Sometimes  when  the  workman's 
method  can  be  improved,  the  standard  time  is  made  less  than  the 
minimum.  Perhaps  it  is  better  to  say  that,  based  upon  the 
observations,  the  standard  is  selected,  keeping  in  mind  the  defini- 
tion of  a  standard,  and  taking  account  of  the  conditions  of  the 


140      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

study,  the  skill  of  the  workman,  the  disposition  of  the  workman, 
the  hardness  of  the  metal  and  all  other  relevant  data. 

Our  standards,  as  so  far  developed,  give  the  proper  amount  of 
time  needed  for  the  actual  productive  processing  of  a  part.  We 
have  mentioned,  incidentally,  that  it  is  necessary  to  eliminate 
from  the  study  and  from  the  standard  any  items  of  non-recurring 
non-productive  time.  But  before  we  can  set  a  proper  rate  we 
must  take  into  account  these  interruptions.  This  we  do  by 
adding  proper  allowances  to  cover  interruptions  which  may 
reasonably  be  expected. 

Fatigue.— The  most  common  allowances  are  those  for  fatigue 
and  tooling.  If  in  addition  the  operator  attends  two  machines 
simultaneously,  there  may  be  a  justifiable  loss  due  to  one  of  the 
machines  being  stopped  while  he  is  busy  with  the  other. 

The  fatigue  allowance  takes  account  of  the  fact  that  a  man 
cannot  be  expected  to  repeat  an  operation  indefinitely  at  a  regular 
and  unvaried  rate,  as  can  a  machine.  There  must  often  be  a 
margin  allowed  to  absorb  the  slackening  of  effort,  which  will 
represent  the  operator's  reaction  from  the  strain  of  continuous 
application.  We  have  already  seen  that  where  the  cutting  time 
is  very  long  the  operator  may  be  expected  to  recuperate  from  a 
considerable  strain  during  the  cutting  time. 

Fatigue  is  a  somewhat  complex  problem.  It  will  vary  with 
the  workman's  physique,  with  the  size  and  shape  of  the  parts, 
with  the  distance  through  which  they  must  be  moved,  with  the 
initial  and  final  positions  of  the  operator  in  making  such  move- 
ments, with  the  average  activity  of  the  operator,  and  sometimes 
with  still  other  factors.  Since  to  determine  the  effect  of  fatigue 
is  theoretically  so  complicated,  we  resort  to  empirical  rules  which 
experience  has  proved  satisfactory. 

The  general  rule  is  to  add  10  per  cent  of  hand  time  for  fatigue. 
It  is  usually  the  hand  time  which  causes  fatigue,  machine  time 
having  the  effect  of  absorbing  the  fatigue  loss.  But  if  the 
cutting  is  done  with  hand  feed  it  is  classed,  for  the  purpose  of 
developing  the  fatigue  allowance,  as  hand  time.  The  observer 
will  have  to  use  his  best  judgment  in  setting  the  fatigue  allowance 
if  the  cutting  time  is  very  long. 

If,  however,  the  work  is  very  heavy,  10  per  cent  will  not 
sufficiently  compensate  for  fatigue.  In  some  operations,  the 
operator  is  required  to  be  constantly  active.  In  such  operations 
20  per  cent,  or  even  more,  depending  upon  the  strain  and  effort 


SETTING  THE  STANDARD  141 

may  not  be  too  much  to  allow  for  fatigue.  We  want  to  impress 
this  fact — that  the  greatest  care  and  good  judgment  are  called 
for  in  setting  fatigue  allowances,  or  great  injustice  and  physical 
harm  can  come  from  a  standard  which  workmen  rightly  stigma- 
tize as  "  killing."  No  good  can  come  to  the  employer  from 
such  a  standard. 

The  Tool  Allowance. — The  tool  allowance  is  provided  to  cover 
time  required  for  minor  adjustments  of  the  machines,  for  grinding 
tools,  changing  cutters  and  the  like.  Five  per  cent  of  the 
machine  time  is  a  fair  average  for  this  purpose.  Here  again 
the  observer  must  use  his  judgment.  In  some  milling  operations, 
1  per  cent  tool  allowance  is  enough,  especially  if  exactness  of 
cut  is  sought  rather  than  speed,  and  the  cutters  consequently 
stand  up  well  and  can  be  changed  in  a  comparatively  short  time. 
When  the  tools  are  cared  for  in  the  toolroom  and  the  operator 
has  only  to  replace  them  on  his  machine,  1  per  cent  is  ample. 
The  duration  of  cuts  will  also  offset  the  percentage  allowed  for 
tooling.  When  the  cut  is  long  the  percentage  naturally  will  be 
less  than  for  a  short  cut. 

Sometimes  no  tool  allowance  whatever  is  given,  for  the  time 
which  may  be  required  in  tool  adjustment  is  so  slight  that  it  can 
be  included  in  the  fatigue  allowance.  Setting  the  tool  allowance 
does  not  call  for  the  same  measure  of  judgment  as  does  the 
fatigue  allowance,  but  even  so  it  should  not  be  assigned  without 
due  thought. 

Tool  and  fatigue  allowance  between  them  must  cover  the 
extra  cuts  and  extra  measurements  which  the  operator  has  to 
take  in  reasonable  proportion.  If  lack  of  skill  causes  an  undue 
number  of  extra  cuts  or  extra  measurements,  it  is  proper  that 
the  operator  should  suffer  in  decreased  earnings. 

The  Set-up  Time. — On  simple  operations,  the  set-up  time 
may  be  no  more  than  that  required  to  bring  the  tools  from  the 
toolcrib.  But  for  a  complicated  operation  on  the  automatics,  it 
may  be  quite  extended.  It  is  really  a  separate  standard.  It  is 
designed  to  equalize  the  earning  power  of  the  operator  in  supple- 
ment to  the  piece  rates,  taking  account  of  the  fact  that  once  a 
set-up  is  made,  any  number  of  parts  may  be  produced  from  it. 
It  cannot  properly  be  incorporated  in  the  standard  for  the  part 
it  is  intended  to  produce.  Furthermore  it  may  be  done  by  a 
different  man. 

Three  elements  make  up  the  set-up  time;  first,  time  for  taking 


142      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

down  the  preceding  set-up;  second,  time  for  the  set-up  itself; 
third,  time  for  the  extra  cuts  and  measurements  necessary  to 
secure  adjustment.  The  first  element  is  a  constant  for  each 
class  of  machines  based  on  the  average  take-down  of  jobs  on 
machines  of  that  class.  It  is  obtained  by  observation.  The 
average  must  be  used  because  it  is  impossible  to  predict  for  any 
set-up  the  job  which  would  precede  it,  and  the  only  alternative 
would  be  to  have  a  take-down  rate  separate  from  the  set-up  rate. 
The  number  of  set-ups  to  be  made  will  seldom  justify  this  degree 
of  detail.  The  second  element,  the  set-up  time  itself,  is  stand- 
ardized from  analyzed  observation  just  as  are  the  operations 
themselves.  The  adjustment  time  is  most  conveniently  obtained 
by  subtracting  the  average  of  the  over-all  times  on  the  operation 
from  the  observed  over-all  on  the  first  few  parts  until  adjustment 
is  completed.  The  complete  set-up  standard  will  be  the  sum  of 
the  three  elements. 

The  extent  to  which  detailed  set-up  times  are  warranted 
depends  upon  the  magnitude  of  the  set-up  and  the  frequency  with 
which  it  recurs. 


CHAPTER  XII 
SETTING  PIECE  RATES 

When  the  standard  time  for  an  operation  has  been  determined, 
there  is  no  mathematical  difficulty  in  setting  a  piece  rate  from 
it.  We  simply  set  such  a  price  as,  at  the  standard  hourly  produc- 
tion, will  give  a  predetermined  hourly  earning.  As  an  example, 
we  are  choosing  figures  which  will  give  even  results: 

Standard  time  per  part 55  sees. 

Fatigue  and  tool  allowance.  ...     5  sees. 

Total  per  part 60  sees. 

Hourly  production  =  3600  -=-  60  =  60  parts  per  hour. 
Basic  rate  per  hour  (Amount  which  it  is  desired  workman  should  earn)  =$.60 
Rate  per  piece  =  $.60  -j-  60  parts  =  1  c.  each. 

Are  Piece  Rates  an  Incentive? — The  only  chance  to  go  wrong 
is  in  assuming  the  basic  hourly  rate  which  the  workman  is  to 
earn  on  piece  rates.  Remember  that  the  standard  we  have 
arrived  at  is  not  the  production  which  the  average  workman  is 
likely  to  give,  but  that  which  can  be  reasonably  expected  of  the 
skilled  workman.  Therefore,  if  we  took  the  hourly  rate  com- 
monly paid  to  the  run  of  workmen  as  a  basis — the  ordinary  70 
per  cent  man  would  be  suffering  a  30  per  cent  cut,  and  the  skilled 
man  would  have  little  chance  of  earning  more  on  piece  rates 
than  the  poor  men  could  make  on  day  wages.  Now,  piece  rates 
are  installed,  not  primarily  that  management  "  shall  pay  only 
for  what  it  gets"  but  as  an  incentive  to  greater  production. 

Therefore,  the  best  plan  is  to  start  with  the  going  rate  for  the 
70  per  cent  workman.  Say  for  the  sake  of  convenience  that  to 
attract  even  that  grade  of  man,  we  must  offer  him  70  cents  an 
hour.  This  means  at  merely  payment  for  results,  the  skilled 
man  will  be  a  profitable  investment  at  $1.00  an  hour.  Divide 
that  by  the  standard  production  per  hour  and  you  get  the 
piece  rate. 

Then  you  have  offered  an  incentive  to  both  the  70  per  cent  and 
the  100  per  cent  men.  The  70  per  cent  man  knows  that  others 
are  easily  attaining  the  standard  and  are  earning  around  50  per 

143 


144      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

cent  more  than  he,  so  he  strives  to  get  the  extra  money.  The 
100  per  cent  man  knows  that  he  can  easily  keep  up  the  standard, 
so  he  strives — successfully  if  the  standard  is  correct — to  beat  it. 
Production  increases,  and  the  management  profits  through  having 
more  output  over  which  to  spread  the  overhead. 

Never  Cut  a  Piece  Rate. — Just  one  word  of  warning;  never 
cut  a  piece  rate  unless  the  method  of  performing  an  operation  is 
actually  changed — when,  in  fact,  a  new  operation  demands  a 
new  rate— or,  and  this  comes  but  once  or  twice  in  a  generation, 
when  the  entire  wage  scale  throughout  the  country  is  seeking  a 
new  level  after  inflation,  as  in  1921. 

Otherwise  a  cut  in  rates  is  a  confession  that  the  rates  were 
incorrectly  set  in  the  first  place.  Make  sure  your  standards  are 
correct  before  you  set  rates,  and  then  guarantee  your  rates. 

It  is  often  desirable  to  set  a  rate  for  a  new  part  without  delaying 
to  take  time  studies.  This  occurs  particularly  in  the  so-called 
job  shop  where  new  work  is  constantly  coming  up  and  where 
long,  repetitive  runs  are  almost  unknown. 

It  is  entirely  possible  so  to  set  standards  on  fundamental 
operations  that  rates  for  any  new  job  can  be  built  up  synthetic- 
ally. This  has  value  not  only  in  deriving  new  rates.  It  makes 
possible  a  great  saving  in  time  when  it  becomes  necessary  to  set  a 
rate  for  a  part  similar  except  as  to  size  to  one  on  which  a  rate 
has  been  set.  This  is  the  most  complicated  phase  of  rate  setting 
once  the  elementary  time  studies  have  been  made. 

In  discussing  the  fundamentals  of  time  study  we  mentioned 
that  in  making  the  original  analysis  the  time  study  man  should 
bear  in  mind  that  his  studies  might  ultimately  be  used  in  deriving 
the  rates.  It  is  therefore  desirable  that  before  rate  setting  is 
begun  in  a  department,  a  survey  of  the  work  be  made  to  deter- 
mine the  extent  to  which  derived  rates  may  be  used,  so  that 
studies  on  the  same  class  of  operations  will  not  necessarily  be 
duplicated  and  yet  that  no  operation  of  importance  be  overlooked. 

Extending  the  Rates. — In  a  shop  departmentalized  on  the 
"battery  system"  there  are  two  methods  of  attack  which  might 
be  used  in  extending  the  rates.  The  first  is  to  follow  a  part 
through  its  entire  machining  and  then  attempt  to  extend  the 
standards  set  for  this  part  laterally  to  similar  operations  on  other 
parts.  Sometimes  this  plan  is  not  advisable  because  it  results  in 
duplication  of  studies.  If  but  small  quantities  are  put  through, 
it  requires  considerable  time  to  take  the  studies,  for  the  observer 


SETTING  PIECE  RATES 


145 


must  be  on  the  alert  to  catch  the  beginning  of  each  operation  on 
a  lot  and  this  prevents  using  the  time  between  operations  to  any 
advantage  on  other  studies. 

Therefore  it  develops  that  the  plan  most  often  used  is  to  take 
the  work  by  departments,  segregating  all  operations  within  a 
given  department.  These  operations  are  grouped,  first  by  similar 
parts,  and  then  by  operations,  from  the  data  shown  on  the  route 


Part  No. 

Cut 
Clutch      . 

B^vet 
Clutch 

Mill 
Keyway 

Mill 
Square 

XV  }/• 

i/ 

5F 

A^>- 

/•#  1$ 

!? 

t^ 

f 

C+1 

r*V 

>"- 

04.J 

._  »s 

Kf^ 

ttitttf 

t/r 

*v 

t^ 

v*fi 

#x»    1A 

*^ 

t>^ 

t^f^t^ 

J0U-  I/J 

FIG.  60. — Diagram  for  keeping  track  of  time  studies. 

sheets  which  were  described  in  Chap.  IX  on  planning  parts. 
A  diagram  showing  this  information  is  given  in  Fig.  60. 

When  a  study  is  taken,  that  fact  is  indicated  by  placing  three 
check  marks  at  the  operation  on  the  diagram.  The  unchecked 
studies  are  needed  to  complete  the  skeleton  of  observed  perform- 
ance for  the  entire  department.  As  rates  are  derived  the  opera- 
tions are  checked  on  the  diagram  with  a  single  check.  Actual 
observations  to  verify  derived  standards  are  indicated  by  a 
second  check.  The  diagram  reveals  at  any  time  the  statution 
the  original  studies,  of  the  derived  studies  and  of  the  verificas  of 
the  derived  studies. 

One  Example  of  Rate  Derivation. — For  a  specific  example  in 
rate  derivation,  we  will  consider  the  cutting  of  clutches.  Rates 
for  the  milling  of  all  clutches  were  secured  from  but  two  studies — 
those  on  parts  CA19  and  BA37— shown  in  Figs.  61  and  62.  The 
analysis  includes  mounting  the  parts,  securing  them  in  position, 
and  then  a  series  of  six  cuts,  one  for  each  tooth.  Since  the  teeth 
are  identical,  the  cuts  are  identical.  After  completing  a  cut,  it  is 
necessary  to  position  the  clutch  so  as  to  oppose  the  next  tooth  to 
the  cutter  and  this  is  done  in  the  performance  "rotate  parts." 
10 


146      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


-• TIME STUDY  No.../# 


MACH.NE  No  . 

Af//// 


MAN  B 

MANC 

MAN  D _ 

MANE 

MAN  F 


-  ..............  ......RATE 


..RATE 

.RATE. 


TOOL  . 

SPEED  .EP.M./<?^... 

sf//a* 
FEED  ,...<^? 

DEPTH  . „.„„ 

MATERIAL _. 

DEPT..//.. 


TIME 


STOPPING  POINT 


PERFORMANCE  TIMES 


^&^2  _/ 


2Z' 


'/- 42.' 


U 


V371 


:£ 


/r 


Aor/  Cu/ 


ffofs/e 


fa/e 


ar/Ct/t 


/ease  firr/s 


e/Ttove  f//7ff/red  '/frrfs 


tf  4/2  4/6 


ri^rrr 


TOOL.S 


LGTH  CUT     DPTH  CUT 


3- 


C  - 


FIG.  61. — Time  study  sheet  on  clutch. 


SETTING  PIECE  RATES 


147 


0 


DATE  c/2/^  £////•.- tmt.330.&K_          STUDY  NO..2& 

MACHINE  K0.243    CorffaMZ....  R.P.M./6Z. 

TYPE  #m 


OPERATION 


TOOL 


..RATE SPEED  F,RM.../^...._ 

..RATE _       FEED  ..^f.".. __ 

..  HATE DEPTH 


RATE „.       MATERIAL.... 

.'. _ RATE. ,    DEPT../^..... 


TIME 


PERFORMANCE  TIMES 


ftLOL 


z£_ 


j22l 


2£f^f 


2£^Z£ 


7f 


^L. 


&.&, 


•£/£_£_ 


firrtr 


tfafa/e 


'£& 


2SL 


*o/<r/f  forts 


Z0< 


•CLZ2L 


fforffirf 


£?£_ 


zr_ 


&L 


nlfj£& 

3 


Mr/?*//* 


'<f/7</ft 


??- 


4L 


&L&L 


igrxi 


/£' 


ff* 


n 


<WW^e 


Wter'Vi 


-TQQL5 


I  GTH    CUT       OPTH   CUT 


.c- 


\J//*~S3S,fi*~ZX^ 


fr-far&f\ 


FIG.  62. — Another  clutch  time  study  sheet. 


148      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

The  teeth  are  equally  distanced  and  therefore  the  performances, 
" rotate  parts"  are  identical.  A  sketch  of  the  part  is  shown  in 
Fig.  63. 

At  the  conclusion  of  the  six  cuts  with  their  intervening  rota- 
tions, one  side  of  each  of  the  six  teeth  has  been  formed.     The  six 


FIG.     63. — The  part  in  question. 

cuts  are  known  as  forming  cuts.  For  forming  the  other  side  of 
the  teeth,  the  clutch  is  displaced  laterally  so  as  to  bring  the 
opposite  side  of  the  tooth  into  position  before  the  cutters.  This 
is  done  in  the  performance,  "move  table." 

After  displacing  the  table  laterally  by  the  required  distance, 
the  second  series  of  forming  cuts  is  begun  with  performance  16. 
This  cut  leaves  a  small  quantity  of  dead  stock  between  the  adja- 
cent tooth  faces  that  have  been  formed.  To  remove  this,  the 
index  head  is  turned  backward  a  portion  of  a  turn  and  the  clutch 
is  run  under  the  cutter.  The  operator  then  positions  the  clutch 
for  the  next  forming  cut,  in  the  performance  "rotate  parts." 
The  cycle  for  each  tooth  is  therefore,  on  the  second  series  of 
forming  cuts,  (1)  the  forming  cut  itself,  (2)  the  dead  stock  cut  or 
"short  cut,"  and  (3)  the  performance  "rotate  parts."  There 
being  six  teeth,  this  cycle  is  repeated  six  times  except  that  after 
completing  the  last  short  cut,  there  is  no  need  to  rotate  the 
parts,  since  they  are  completed  and  ready  to  be  removed.  The 
operation  is  accordingly  concluded  by  the  performances  "release 
parts,"  "remove  finished  parts"  and  "clean  table." 


SETTING  PIECE  RATES  149 

This  is  the  operation  in  complete  detail.  The  performances 
which  comprise  the  operation  may  be  built  into  other  operations 
of  a  similar  character  by  re-arranging  them  and  by  using  more  or 
fewer  as  needed. 

How  Performances  Are  Made  Interchangeable. — The  first 
consideration  is  to  standardize  the  performances,  which  is  done 
for  each  study  separately  by  the  method  described  in  the  preced- 
ing chapter.  Since,  in  the  two  parts  studied,  we  have  similar 
operations,  we  must  reconcile  the  standards  of  one  study  with 
those  of  the  other.  This  gives  the  proof  that  the  performances 
are  interchangeable. 

On  the  first  performance,  " mount  parts,"  we  find  an  exact 
coincidence.  On  the  second  performance,  " tighten  clutch" 
there  is  a  considerable  discrepancy.  Investigation  shows  that 
part  BA37,  being  a  gear,  has  a  round  bore,  and  the  other,  CA19, 
being  a  clutch,  has  its  center  broached  out  square.  The  differ- 
ence in  time  is  allowable  because  it  is  much  easier  firmly  to  fix  the 
square  centered  clutch  than  the  smooth  round  bored  gear. 
Here  is  an  essential  difference  in  the  two  performances,  which 
dictates  that  one  be  used  on  gears  bearing  clutches  and  the  other 
on  the  simple  clutches. 

Finding  a  Common  Standard. — Next  we  examine  the  first 
series  of  forming  cuts  on  the  two  parts.  The  conditions  under 
which  the  cut  is  made,  its  length  and  depth,  its  speed  and  feed, 
indicate  that  the  time  should  be  the  same.  But  the  agreement  is 
not  as  close  as  it  should  be.  Investigation  shows  that  the  varia- 
tion is  due  largely  to  differences  in  the  skill  of  the  operator,  to 
accidental  variations  in  the  hardness  of  the  metal  and  so  on. 
Therefore  it  seems  best  to  reconcile  and  remove  the  time  variation 
in  the  standard,  which  is  done  by  adding  to  the  smaller  of  the  two 
standards  two-thirds  of  the  difference  between  them  and  accept 
the  result  as  the  common  standard  which  holds  for  all  twelve 
of  the  forming  cuts  of  both  series.  A  common  standard  can 
similarly  be  found  for  the  "rotate  parts"  performance,  and  for 
the  " short  cut"  performance. 

As  the  standard  for  the  "move  table"  performance,  we  chose 
the  higher  of  the  two  because  the  method  by  which  operator  42 
reduced  the  time  unduly  jeopardized  the  accuracy  of  the  work. 
His  practice  was  to  throw  on  the  feed  for  the  seventh  cut  from  his 
position  beneath  the  table  after  he  had  finished  moving  it.  If 
he  had  accidentally  omitted  to  rotate  the  parts  before  moving  the 


150      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

table,  the  cutter  would  tear  into  the  tooth  and  ruin  the  part. 
The  standard  method  requires  the  operator  to  return  to  his 
position  in  front  of  the  machine  before  throwing  on  the  feed. 

More  discrepancy  was  noted  in  the  performance  "  release 
parts"  and  two  standards  were  maintained  for  this  performance 
on  the  reasonable  supposition  that  if  it  took  longer  to  secure  one 
part  it  should  take  longer  to  release  it. 

Similarly,  a  difference  was  allowed  between  clutches  and  gears 
on  the  performance,  "move  finished  parts,"  for  the  reason  that 
the  clutches  are  so  shaped  as  to  permit  them  to  be  removed  one  in 
each  hand,  whereas  the  gears  must  be  removed  singly. 

Since  the  variation  on  the  final  performance,  " clean  table" 
was  due  solely  to  the  methods  of  the  two  operators,  the  lesser  of 
the  two  was  taken  as  the  standard. 

A  Typical  Problem. — It  is  next  necessary  to  consider  the  vari- 
ables which  enter  into  the  operations.  All  clutches  were  found 
to  fall  into  two  general  divisions,  single  step  and  double  step 
clutches.  We  will  take  up  first  the  single  step  class,  since  both  of 
the  studies  are  of  that  kind  of  clutches. 

The  first  variable  is  the  weight  of  the  parts  which  affects  the 
ease  with  which  they  can  be  handled.  While  the  simple  clutches 
are  uniform  in  weight,  the  gears  vary  in  weight  from  5  to  20 
pounds  or  more.  This  must  be  taken  account  of  in  performances 
1  and  34.  Both  gears  and  clutches  show  a  variation  in  the 
height  of  the  clutch  boss  which  determines  the  length  of  cut; 
and  in  the  width  of  the  space  between  teeth,  which  determines 
the  amount  of  dead  stock  that  is  left  to  be  removed.  The  width 
of  the  tooth  space  is  a  function  of  the  outside  diameter  of  the 
clutch  stock.  The  variation  in  weight  affects  only  performances 
1  and  34,  for  the  parts  are  rotated  by  an  index  head  which  can 
swing  a  heavy  gear  as  easily  as  a  light  one.  The  "move  table" 
performance  is  a  constant. 

Computing  the  Cutting  Time. — The  number  of  forming 
cuts —  but  not  their  duration —  is  determined  by  the  number  of 
teeth.  The  duration  of  the  cuts  will  vary.  At  a  constant  depth 
of  cut,  the  cutting  time  will  vary  as  the  thickness  of  the  stock, 
in  other  words,  in  proportion  to  the  length  of  cut.  For  a  constant 
length  of  cut,  the  greater  the  depth  the  greater  the  cutting  time, 
and  the  smaller  the  depth  the  less  the  cutting  time.  The  cut- 
ting time  for  varying  lengths  of  cut  is  computed  by  direct  pro- 
portion— half  the  cut  length,  half  the  cutting  time. 


SETTING  PIECE  RATES  151 

The  variation  in  time  due  to  the  depth  of  the  cut  is  not  direct. 
It  takes  effect  through  a  decreased  drag  on  the  machine  feed  and 
the  hand  feed.  It  seems  best  to  compensate  for  it  in  the  few 
cases  in  which  variation  occurs  by  an  arbitrary  estimate;  on  most 
of  the  clutches  it  remains  a  constant. 

Obviously,  if  a  clutch  has  six  teeth  there  must  be  12  forming 
cuts,  and  if  there  be  eight  teeth  there  must  be  16  forming  cuts. 
The  number  of  cuts  in  excess  of  the  number  of  forming  cuts  is 
determined  by  the  width  of  the  space  between  teeth.  The 
cutters  used  have  a  %-in.  cutting  edge.  The  amount  of  dead 
stock  remaining  after  the  forming  cuts  depends  upon  the  dif- 
ference between  the  two  %-in.  forming  cuts  and  the  total  width 
of  the  space  between  teeth.  If  twice  %  in.  from  the  width 
of  the  tooth  space  leaves  a  positive  remainder  dead  stock  must 
be  removed.  Observation  indicates  that  where  the  amount  of 
dead  stock  is  less  than  two-thirds  of  the  cutting  edge,  namely, 
Y±  inch,  it  can  be  removed  by  a  short  cut.  Beyond  this 
amount,  an  extra  machine  feed  cut  just  like  the  forming  cuts  is 
necessary.  When  the  dead  stock  exceeds  the  amount  that  can 
be  removed  by  a  machine  feed  cut — that  is,  when  it  is  greater 
than  the  width  of  the  cutting  edge — it  can  be  removed  by  a 
machine  cut  plus  a  short  cut  up  to  the  point  when  this  short- 
cut would  increase  to  more  than  two-thirds  the  width  of  the 
cutting  edge.  We  are  thus  able  to  determine  from  the  drawings 
of  the  various  clutches  the  number  and  the  character  of  the  dead 
stock  cuts. 

Tabulating  the  Variables. — Observation  indicates  that  with 
the  increase  in  width  of  the  dead  stock  to  be  removed  there  is  a 
varaition  in  the  short  cut  time  amounting  to  but  little  more  than 
a  second.  It  is  not  worth  while  to  complicate  the  problem  by 
introducing  so  slight  a  variation  in  view  of  the  extended  overall 
time  required  for  the  operation.  Note  that  if  the  width  of  the 
tooth  space  be  exactly  %-in.  we  should,  using  perfect  cutters, 
remove  all  of  the  stock  in  the  two  forming  cuts.  As  a  cutter 
wears,  however,  there  may  be  a  very  thin  strip  left  between  the 
cuts.  It  is  not  necessary  to  allow  for  this,  because  it  can  be 
removed  while  the  table  is  being  positioned  for  the  next  cut  by 
turning  the  index  head  back  and  running  it  backward  under  the 
cutters. 

With  these  facts  in  our  possession  we  can  tabulate  the  variables 
and  build  up  a  proper  standard  for  each  clutch.  Such  a  tabula- 


152      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

tion  is  shown  in  Fig.  64.  On  performances  1  and  34  for  the  gears, 
arbitrary  allowances  are  made  to  cover  increased  or  decreased 
weight  as  compared  with  part  BA37.  If  a  clutch  is  being  rated, 
we  take  the  time  for  these  performances  without  change  from 
study  number  10.  We  determine  the  duration  of  the  forming 


Of*     CLUTCH 


' 


*! 


fZ 


Gf 


fa 


FIG.  64. — Tabulation  of  variables. 

cuts  from  their  dimensions  compared  with  the  observed  standard 
in  accordance  with  the  principles  of  proportion  for  length  and 
of  allowance  for  height  as  set  forth  above,  and  put  down  the 
number  of  them  which  is  indicated  by  the  number  of  teeth.  We 
next  enter  the  " rotate  parts"  performance  which  is  a  constant, 
in  accordance  with  the  number  of  forming  cuts.  We  put  in  the 
constant  " move  table"  performance.  From  the  tooth  space  we 
determine  whether  we  shall  omit  all  dead  stock  cuts,  or  add 
a  series  of  constant  short  cuts  one  per  tooth,  or  add  a  dead 
stock  machine  feed  cut  per  tooth,  or  add  a  dead  stock  machine 
feed  cut  plus  a  short  cut  per  tooth.  The  ''release  parts"  con- 
stant is  taken  from  study  10  or  20,  depending  upon  whether 


SETTING  PIECE  RATES 


153 


a  clutch  or  a  gear  is  being  rated.  Similarly  with  the  " remove 
finished  part"  performance  which  if  indicated  we  adjust  for 
weight  as  was  done  for  performance  1.  The  addition  of  the 
" clean  table"  constant  completes  the  standard  except  for  the 


o 


TIME  ..........................       STUDY 


»:34 


MACHINE 

TYPE    Af/Y//'ny 

MANB  ............. 

MANO  ......  ............  .. 

MAN  E  .............  - 

MAN  F 


RATE TOOL 

RATE SPEED  .F.R.M../SW. 

RATE FEED  

RATE DEPTH  OgjttLUHL&itJJif 

RATE MATERIAL1 

RATE .  DEPT.V^. 


PERFORMANCE  TIH 


Afoc/fff  ffrr/s 


ZZ' 


T/S^/g/7  C/&/C/7 


2.7' 


ZZ' 


2?' 


FIG.  65. — Derived  time  study  form. 


154      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


o 


DATE 
TYPE 


*/4/M 

MACHINE  No. 

MAN  t 

MANS. - 

MAN  C.._ 

MAN  D „.„ 

MAN  E 

MANF 


TIME  STUDY 

«i£!/«2 


RATE.  ..  TOOL _.. 

RATE SPEED  KfMLJGA 

RATE  FEED  _ 

......RATE DEPTH  CvT 

RATE  MATERIAL    . 

RATE.....  DEPT..y5£.. 


PERFORMANCE  NAME 


STOPPING  POINT 


ZZ' 


27' 


TaAfe 


20' 


2*_<2 


tart  ZbffA) 


MrnSfo 


3* 


Zff 


/Z7' 


22' 


/r 


/faflrf '  fa  far  /?f/&fsf 


47  fefofe 


7//77C 


'  sfa»  .< 


_C 


37'  \ 


FIG.  66. — Another  derived  time  study. 


SETTING  PIECE  RATES  155 

summation  of  the  performances.  A  derived  time  study  built 
up  in  this  fashion  is  shown  in  Fig.  65. 

A  Variation  of  the  Problem. — Double  step  clutches  are  cut  in 
much  the  same  way  as  single  step  clutches.  The  process  is 
first  to  cut  a  single  step  clutch  with  wide  teeth  out  of  which  is 
later  cut  the  second  stage.  The  first  part  of  double  step  clutch 
cutting  is  therefore  precisely  as  for  single  step  clutches;  except 
that  after  having  completed  the  single  step  cutting,  we  interpose 
the  performances  necessary  to  produce  the  second  step  between 
the  last  dead  stock  cut  on  the  single  step  clutch,  and  the  per- 
formance " release  the  parts."  Observation  indicates  the  detail 
of  the  second  step  to  be  as  follows : 

After  the  last  dead  stock  cut  has  been  made  on  the  single  step 
clutch,  the  operator  lowers  the  table  to  a  point  which  will  place 
the  cutter  at  the  height  of  the  second  step  teeth,  and  takes  a 
series  of  forming  cuts.  Only  one  forming  cut  is  necessary  since 
the  second  step  teeth  have  one  side  of  each  tooth  in  common  with 
the  first  step  teeth.  After  the  one  forming  cut  has  been  taken, 
therefore,  there  remains  only  the  removal  of  the  dead  stock,  the 
amount  of  which  is  determined  by  the  width  of  the  lower  tooth. 
The  considerations  which  apply  to  the  dead  stock  cuts  on  single 
clutches  hold  for  removing  the  dead  stock  on  the  second  step. 
Forming  and  dead  stock  cuts  having  been  taken,  cutting  of  a 
double  step  clutch  has  been  completed,  and  it  becomes  necessary 
to  position  the  table  for  the  initial  performance  on  the  next  clutch. 
This  consists  of  moving  the  table  laterally  and  raising  it — in  other 
words,  that  the  two  performances  of  "move  table"  and  "lower 
table"  that  have  previously  been  made  be  reversed  in  a  single 
performance.  The  clutch  is  then  released  and  the  table  cleaned 
as  for  a  single  step  clutch. 

Thus,  we  have  all  the  data  needed  to  build  up  the  operation  for 
the  double  step  clutch  except  the  performances  "lower  table" 
and  "move  and  raise  table,"  which  are  secured  by  separate 
studies. 

The  forming  cuts  on  the  double  step  clutches  have  only  half 
the  depth  of  the  single  step  cuts  and  compensation  must  be 
introduced  for  this.  In  Fig.  66  is  shown  a  derived  study  for 
double  step  clutch  milling. 


CHAPTER  XIII 
SPECIAL  CASES  OF  TIME  STUDY  AND  RATE  SETTING 

It  is  obviously  impossible  to  describe  the  procedure  for  taking 
time  studies  on  every  job  that  can  conceivably  be  done  in  a 
machine  shop.  The  best  that  we  can  do  is  to  present  certain 
typical  problems  and  show  how  they  were  solved.  Then  the 
individual  machine  shop  executive  must  try  to  choose  time 
study  men  who  are  ingenious  enough  to  work  out  a  solution  for 
each  puzzling  problem.  In  the  preceding  chapters  we  have 
outlined  the  fundamental  methods  of  time  study,  the  setting  of 
standards  and  rate  setting.  It  seems  well  in  this  chapter  to 
touch  upon  some  of  the  special  considerations  which  apply  to 
making  time  studies  in  various  typical  machine  shop  departments, 
which  will  indicate  how  the  problems  are  attacked.  All  of  the 
studies  cited  are  actual  ones,  chosen  because  they  present 
typical  conditions. 

Time  Studies  on  the  Lathe.  (1)  A  Lathe  Department  Problem. 
Where  the  peculiarities  of  the  stock  introduce  a  variable  for  the 
same  operation,  several  studies  may  be  needed  before  the  correct 
rate  can  be  set.  A  case  in  point  was  the  "cut  off  and  re-center" 
operation  on  shafts  in  a  certain  automobile  shop.  Most  of  these 
shafts  were  turned  out  in  two  operations,  one  turning  on  each 
end.  It  was  most  economical  to  have  the  blank  somewhat  in 
excess  of  the  length  of  the  finished  shaft  with  the  result  that  the 
operator  took  the  finished  shaft  out  at  slightly  varying  distances 
from  the  ends  of  the  blank.  The  excess  stock  had  to  be  removed 
in  the  operation  "cut  off  and  re-center."  The  amount  of  stock 
to  be  cut  off  on  an  end  will  vary  and  whether  or  not  the  shaft 
had  to  be  re-centered  depended  upon  the  amount  of  stock  to  be 
removed  which  in  time  determined  the  time  required  and  whether 
the  performance  "re-center"  had  to  be  made.  Obviously,  it 
could  not  be  determined  with  any  certainty  what  the  standard 
time  should  be  without  knowing  the  average  amount  of  stock  to 
be  removed  and  the  average  percentage  of  re-centering  to  be  done, 
for  without  knowledge  of  the  average  condition  it  was  impossible 
to  say  with  certainty  that  any  given  study  or  group  of  studies 
would  be  representative. 

156 


SPECIAL  TIME  STUDIES  157 

To  get  a  basis  to  work  on,  the  man  who  inspected  the  finished 
shafts  after  turning,  was  required  to  record  the  length  of  stock  to 
be  removed  from  each  shaft,  whether  re-centering  was  required, 
and  the  diameter  of  the  dead  stock.  From  this  record,  after  a 
sufficient  number  of  observations  had  been  accumulated,  it  was 
found  that  the  average  length  of  dead  stock  was  .0127  in.  at  a 
diameter  of  %  in.  and  that  re-centering  was  required  on  43  out  of 
every  100  shaft  ends.  With  this  information,  the  standards  for 
all  shafts  could  be  built  up  by  determining  the  standard  time  for  a 
single  cut,  the  amount  of  stock  removed  by  this  standard  cut, 
and  hence,  the  number  of  standard  cuts  to  be  allowed  per  shaft; 
adding  to  this,  43  per  cent  of  the  standard  time  developed  for 
re-centering;  and  then  fitting  in  the  easily  supplied  standards  on 
the  other  performances  such  as  " mount"  and  " dismount  part." 

A  Surface  Grinder  Study.  (2)  Surface  Grinder  Problem. — In 
one  shop,  gears,  collars  and  the  like  were  ground  to  specification 
on  the  surface  grinder.  Regardless  of  the  size  of  the  parts  them- 
selves, the  amount  of  stock  to  be  removed  in  the  grinder  did 
not  vary  a  great  deal  since  the  limits  of  machining  on  the  different 
parts  were  very  nearly  the  same  before  the  parts  came  to  the 
grinder.  The  parts  were  mounted  for  grinding  upon  a  magentic 
chuck. 

Regardless  of  the  size  of  the  parts,  the  total  surface  ground  at 
each  grinding  tends  to  be  about  constant,  even  though  at  one  time 
there  may  be  several  small  parts  and  at  another  only  a  few  larger 
ones.  Therefore,  the  grinding  time  for  any  one  part  gives  a 
guide  to  the  grinding  time  on  other  parts.  If,  however,  it  appears 
from  observation  that  the  variation  in  actual  grinding  time 
between  parts  is  enough  to  take  account  of,  it  will  be  necessary 
to  take  studies  on  each  group  of  similar  parts. 

Since  the  parts  are  put  on  the  chuck  in  varying  quantities, 
a  complication  exists,  for  although  the  proper  grinding  time  to 
allow  may  have  been  determined,  we  do  not  know  how  to  propor- 
tion the  amount  to  individual  parts  because  we  have  no  informa- 
tion of  the  number  of  parts  that  may  be  ground  at  once. 

Roughly,  we  know  that  this  will  be  a  function  of  the  size  of 
the  parts  as  compared  with  the  size  of  chuck,  and  of  the  surface 
exposed  to  the  power  available.  With  this  information,  a 
table  might  be  prepared  showing  the  number  of  parts  of  each 
kind  which  could  be  mounted  at  once  on  the  chuck.  But  study 
shows  that  there  is  another  factor. 


158      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Most  parts  must  be  surfaced  by  the  grinder  on  both  sides. 
At  first  glance  it  might  seem  that  a  lot  of  collars  J£  in.  thick 
with  a  maximum  variation  of  .010  in.  could  all  be  placed  on  the 
chuck  up  to  the  capacity  of  chuck,  and  the  grinding  then  be 
begun  with  the  wheel  hitting  upon  the  highest  part  only  until  it 
was  reduced  to  the  thickness  of  the  next  part.  Then  the  grinding 
would  proceed  on  two  parts  until  the  thickness  of  the  third  part 
was  reached  and  so  on  until  the  high  part  had  been  reduced 
by  half  the  amount  of  the  total  variation.  Then  the  parts 
could  be  turned  over  and  treated  similarly  on  the  opposite 
side. 

A  little  further  thought  shows  that  the  result  would  be  to 
grind  those  parts  whose  variation  was  less  than  half  of  the  maximum 
on  one  side  only,  whereas  it  is  required  that  all  parts  be  ground  on 
both  sides.  If  the  grinding  as  above  were  continued  to  three- 
fourths  of  the  maximum  variation  from  the  first  side,  those  parts 
whose  variation  was  less  than  one-fourth  would  be  ground  on  one 
side  only.  And  so  on.  It  is  therefore  the  practice,  before  put- 
ting the  parts  on  the  chuck,  to  measure  and  group  them  in 
accordance  with  the  amount  of  variation  and  run  in  one  group 
only  those  parts  with  approximately  the  same  amount  of  stock 
to  be  removed.  The  same  thing  holds  true  for  many  parts  that 
are  ground  on  surface  grinders. 

A  Common  Problem. — The  situation  is  similar  to  that  with  the 
"cut  off  and  re-center"  operation  on  shafts.  The  basis  of  times 
here  must  be  a  single  grinding,  and  we  must  determine  the 
average  number  of  parts  going  into  a  grinding.  Accordingly  we 
accumulate  data  upon  this  point  by  having  the  operator  record 
the  number  of  parts  of  each  lot  at  a  run.  The  averages  obtained 
from  this  data  are  corrected  in  accordance  with  considerations 
of  size  of  parts  in  connection  with  size  of  chuck,  and  surface  of 
parts  in  connection  with  available  power,  to  obtain  a  proper 
average  run  of  each  part. 

After  this  data  has  been  secured  we  are  next  confronted  with 
the  fact  that  the  most  of  our  performances  will  be  the  disposition 
of  the  known  average  number  of  parts,  and  therefore  we  cannot 
make  a  single  part  the  basis  of  any  of  the  studies.  The  procedure 
will  be  to  give  one  performance  time  column  on  the  time  analysis 
form  to  each  lot  and  compile  a  "post-mortem"  analysis  from  the 
detailed  observations  on  a  series  of  lots,  obtained  by  continuous 
time  observation. 


SPECIAL  TIME  STUDIES  159 

Chucking  Grinders.  (3)  A  Chucking  Grinder  Problem. — The 
method  of  attacking  time  studies  on  chucking  grinders  differs 
from  that  used  on  surface  grinders.  Take  for  instance  the 
operation  " grind  hole"  on  a  gear.  The  gears  are  placed  in  the 
chuck  one  at  a  time  and  the  hole  ground  to  fit  a  standard  gauge. 
The  grinding  is  cooled  with  soap  water,  therefore  the  expansion 
of  the  part  with  the  heat  of  grinding  is  not  a  factor,  and  the  only 
concern  is  the  amount  of  stock  to  be  removed.  Within  the 
limits  imposed  upon  the  preceding  boring  operation  this  does  not 
vary  enough  to  prevent  a  series  of  10  observations  from  being 
representative.  We  therefore  proceed  with  the  study  in  the 
same  way  that  we  would  with  a  milling  operation — by  the  part, 
rather  than  by  the  lot  as  we  decided  to  do  on  the  surface  grinder. 
We  can  divide  the  operation  up  into  performances,  and  readily 
obtain  the  standards  on  such  performances  as  " mounting" 
and  " removing"  by  the  methods  already  discussed.  The 
number  of  performances,  however,  will  include  a  varying  number 
of  " grinds"  and  " measures;"  and  these  grinds  will  not  be 
interchangeable,  since  the  more  the  operator  removes  on  the 
first  grind  the  less  there  will  be  left  for  the  second,  and  so  on. 
It  is  necessary  to  determine  in  addition  to  the  standard  grinding 
time  the  standard  number  of  " grinds"  and  of  "measures.  " 

Determining  the  Standard  Number  of  Grinds. — This  is  done 
by  continuous  time  observation,  recording  the  time  for  each 
grind  in  its  proper  progressive  order  and  never  as  some  other 
grind  if  it  actually  was,  say,  fifth  in  order.  We  will  then  be 
able  to  compute  the  total  grinding  time  in  each  operation  which 
will  run  fairly  uniform.  We  can  tabulate  the  number  of  grinds 
for  each  operation  of  the  10  observed  and  fix  upon  a  standard 
number  of  grinds. 

In  accordance  with  the  average  of  the  observations  for  each 
successive  grind,  we  can  apportion  the  total  grinding  time  stand- 
ard which  we  have  set  between  first  grind,  second  grind,  third 
grind,  etc.  The  number  of  grinds  will  give  a  key  to  the  number 
of  times  the  gauge  should  be  fitted,  and  having  standardized  a 
measuring  time  we  can  supply  one  standard  measuring  time  for 
each  grind  we  have  allowed.  In  this  way  we  build  up  the  total 
standard  for  the  operation. 

It  is  well  also  to  record  in  the  study  the  time  spent  in  dressing 
the  grinding  wheel  to  give  a  key  to  the  tool  allowance. 

Very  small  parts  are  commonly  held  in  the  hand  instead  of 


160      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

being  chucked  for  grinding.  The  time  for  picking  up  a  group  of 
parts  in  the  left  hand  will  have  to  be  introduced  into  the  standard 
through  an  average. 


FIG.  67. — Time  study  record  of  clutch  in  turret  lathe. 

4.  Problems  Presented  by  Semi-Automatic  Turret  Lathes. — 
Figure  67  shows  the  operation  "turn  O.D.  face  clutch  side,  bore, " 
on  part  BA  37.  It  is  a  typical  time  study  on  operations  of  this 
class.  The  point  of  interest  is  the  manner  in  which  the  cuts 
for  several  sides  of  the  turret  are  isolated,  and  the  table  of  cuts, 


SPECIAL  TIME  STUDIES  161 

which  shows  the  detail  of  the  cutting  on  each  side.  Note  also 
the  classified  lost  time  below. 

In  the  table  of  cuts  the  full  detail  of  the  set-up  can  be  studied 
and  the  limiting  cut  picked  out  in  each  case.  If  the  limiting  cut 
is  markedly  below  the  other  cuts,  investigation  can  be  made  to 
determine  if  the  cutting  time  can  be  reduced  by  transferring 
that  particular  tool  to  some  other  cut.  The  shapes  into  which  all 
cutting  tools  are  ground  should,  be  noted,  sketched  and  studied  in 
connection  with  the  speed. 

On  some  machines,  it  is  necessary  also  to  make  continuous 
time  studies  of  the  hand  feed-up  time,  and  to  set  standards  on 
that  independently  of  the  machine  performance. 

Building  the  Total  Standard. — Since  two  or  more  of  these 
machines  are  usually  operated  by  one  man,  there  is  recurring 
lost  time  due  to  one  machine  running  out  while  the  other  is 
being  fed  up.  This  lost  time  is  perhaps  best  studied  by  an 
extended  observation  on  time  lost  per  hour  from  this  cause,  to 
arrive  at  a  fair  average.  An  average  will  have  to  be  used  because 
it  is  impossible  to  predict  what  parts  will  be  worked  on  simul- 
taneously and  the  lost  time  will  of  course  vary  with  the  varying 
relative  time  of  the  two  operations  in  progress. 

Setting  Rates. — In  setting  rates,  the  following  method  will 
be  found  most  satisfactory: 

(1)  Determine  how  many  machines  the  operator  should  normally  be 
expected  to  attend. 

(2)  Divide  the  basic  rate  per  hour  by  this  number;  divide  the  operator's 
hourly  rate  by  this  number. 

(3)  In  setting  the  rates,  use  in  connection  with  the  task  per  hour,  instead 
of  the  whole  basic  rate,  that  portion  of  it  which  has,  in  (2)  been  assigned  to 
each  machine. 

(4)  Pay  the  operator  at  these  piece  rates  for  parts  produced  on  each 
machine,  up  to  the  prescribed  number  of  machines,  and  if  any   of   the 
machines  stand  idle  pay  the  operator  the  assigned  fractions  of  his  hourly 
rate  for  the  idle  machines  concurrently  with  his  piece  rate  earnings  on  the 
active  machines. 

(5)  If  the  operator  has  occasion  to  use  more  machines  than  the  standard 
number,  pay  him  at  the  piece  rate  separately  on  each  machine  used.     If  the 
standard  number  of  machines  has  been  properly  selected,  the  operator 
cannot  concurrently  run  more  than  the  standard  number  and  still  keep  up  his 
production  on  the  standard  number  without  great  extra  effort  for  which  the 
piece  rate  on  the  extra  machines  will  be  no  more  than  proper  compensation. 

If  this  method  be  followed  out,  the  operator  will  always  have 
an  incentive  to  keep  production  at  a  maximum;  and  to  work  as 

many  machines  as  he  can,  economically. 
11 


162      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

An  Incentive  to  Production. — An  example  will  perhaps  make 
the  above  plan  clearer.  Let  us  assume  that  three  machines  per 
operator  is  decided  to  be  the  arrangement  which  will  give  best 
results.  (The  lost  time  per  machine  in  combinations  of  2's, 
3's,  etc.  will  give  an  indication  of  what  the  standard  number 
should  be.)  The  operator  is  paid  45  c.  per  hour  for  day  work, 
and  to  his  reasonable  piece  work  earnings  has  been  assigned  the 
basic  rate  of  60  c.  per  hour.  Since  he  cares  for  three  machines 
he  may  be  supposed  to  earn  15  c.  per  hour  from  each  of  the 
three  to  give  the  total  flat  rate  of  45  c.  per  hour.  Since  his 
total  piece  rate  earning  is  60  c.  per  hour,  20  c.  per  hour  is 
the  basic  rate  for  each  machine.  Suppose  now  that  the  "task 
per  hour"  in  parts  produced  by  one  machine,  was  found  to  be 
50.  At  0.04  c.  for  each  part,  he  is  able  to  earn  the  basic  rate 
of  20  c.  on  one  machine  if  he  produces  50  parts  in  an  hour. 
Assume  that  he  uses  the  one  machine  only  and  lets  the  other  two 
stand  idle:  He  would  be  paid  for  the  hour's  work,  20  c.  on  one 
machine  and  15  c.  on  each  of  the  other  two,  or  50  c.  instead 
of  45  c.  In  point  of  fact  he  would  make  something  over 
50  c.  through  saving  of  the  lost  time  allowances;  but  not  as 
much  as  he  could  earn  by  operating  two  machines  at  once.  Nor 
could  he  earn  as  much  on  two  machines  as  he  could  on  three, 
the  full  standard  number. 

This  is  the  incentive  for  keeping  production  up.  If  it  became 
expedient  to  work  four  machines,  or  one  above  the  standard 
number,  there  would  be  the  possibility  of  a  maximum  80  c. 
an  hour;  and  yet  this  would  only  be  approached,  with  the  stand- 
ard number  of  machines  properly  set,  if  he  used  enough  extra 
exertion  to  offset  the  increased  lost  time  which  would  not  be 
allowed  for,  and  to  give  the  regular  machines  the  proper  attention 
to  keep  their  production  up  to  standard. 

A  Common  Problem  in  Drilling.  (5)  A  Common  Problem 
in  Drilling. — Sometimes  it  is  necessary  to  make  the  time  study 
cycle  cover  two  parts  instead  of  one,  as  for  instance  when  certain 
holes  are  bored  with  the  part  in  a  jig,  and  certain  others  with  the 
part  mounted  on  bars  run  through  housings  and  strapped  to  the 
table.  The  first  part  may  have  the  jig  holes  bored  first,  and  then 
will  be  removed  from  the  jig  and  mounted  on  the  housings  for 
drilling.  The  next  part  will  be  drilled  on  the  housings  first, 
since  they  are  already  in  position,  and  then  put  into  the  jig  as 
the  second  stage  of  the  operation.  The  third  part  will  begin  in 


SPECIAL  TIME  STUDIES  163 

the  jig.  Obviously,  the  proper  method  of  study  will  be  to  make 
an  artificial  operation  out  of  the  machining  on  two  successive 
parts,  to  give  a  complete  cycle. 

Admittedly,  these  few  special  considerations  and  problems  of 
time  study  do  not  exhaust  the  subject.  They  merely  indicate 
the  scope  and  methods  of  approach.  The  next  chapter  will 
discuss  in  some  detail  the  methods  of  time  study  and  rate  setting 
needed  on  automatic  machines. 


CHAPTER  XIV 
TIME  STUDY  ON  AUTOMATIC  MACHINES 

Automatic  machines  present  some  special  problems  in  time 
study  and  rate  setting.  Commonly,  not  much  study  has  been 
given  along  these  lines,  for  the  thought  has  been  that  the  auto- 
matic feature  reduces  the  human  element  to  a  minimum.  This 
is  actually  an  added  reason  for  making  careful  studies. 

Standardization. — The  quality  of  labor  employed  on  this 
kind  of  work  need  not  be  high;  in  fact,  most  automatic  machine 
operators  know  only  how  to  operate  one  certain  kind  of  machine, 
and  frequently  only  one  size.  This  means  that  the  operations 
must  be  standardized  as  much  as  possible,  accurate  standard 
instructions  developed  and  a  careful  scheme  of  supervision  and 
inspection  installed. 

Standardization  is  the  keynote  for  all  automatic  machine 
time  study  work.  Perhaps  because  of  the  fact  that  we  are  dealing 
with  an  automatic  machine,  it  is  possible  to  establish  standard 
speeds,  feeds  and  methods  which  are  applicable  to  practically  all 
types  of  work.  On  an  automatic  machine,  the  human  element  is 
comparatively  unimportant.  Supposing  the  machine  to  be  in 
good  condition,  the  tools  will  feed  evenly  or  at  least  the  same  on 
each  piece,  and  the  movements  of  the  machine  will  take  place 
with  the  same  amount  of  shock  each  time.  This  is  very  different 
from  hand  operated  machines  where  everything  depends  on  a 
human  operator.  While  there  are  exceptions,  this  is  generally 
true. 

After  establishing  sufficient  standards,  it  is  a  comparatively 
easy  matter  to  establish  rates  and  consequently,  costs  on  any 
part  on  which  an  estimate  may  have  to  be  made,  laying  out  what 
each  tool  is  to  do,  so  that  the  tool  designer  will  only  have  to 
design  tools  which  will  fit  in  with  the  layout  already  made. 
Instruction  sheets,  set  up  cards  and  tool  lists  can  be  made  up  at 
the  same  time  long  before  the  job  is  ready  to  work. 

Why  Automatics  Have  Not  Had  Time  Studies. — We  will 
not  try  to  cover  each  automatic  machine  on  the  market,  but  will 
outline  the  methods  which  are  in  use  in  a  large  automatic  depart- 

164 


TIME  STUDY  ON  AUTOMATICS  165 

ment  in  which  there  are  several  different  makes  of  machines  with 
a  multitude  of  different  sizes.  The  same  general  procedure  is 
followed  in  setting  standards  on  each  class  of  machine. 

It  is  also  beyond  the  scope  of  this  chapter  to  attempt  to  out- 
line the  various  types  of  work  which  each  machine  is  particularly 
fitted  to  do.  Some  are  admittedly  designed  for  low  speeds, 
heavy  feeds  and  wide  limits  of  accuracy,  giving  merely  a  roughing 
cut;  others  give  practically  any  degree  of  accuracy  desired,  using 
high  speeds  and  light  feeds.  This  type  will  give  a  very  fine 
finish  to  the  work  if  desired. 

One  reason  why  automatic  machines  have  not  been  generally 
the  subject  of  time  study  work  is  that,  their  operation  being 
automatic,  the  machine  will,  with  proper  attention,  get  out  the 
desired  number  of  pieces  daily  without  an  incentive. 

Also,  the  large  amount  of  time  needed  to  keep  automatics  in 
condition  has  been  given  as  a  reason  for  not  subjecting  them  to 
time  study.  This  loss  of  time,  due  to  failure  of  machine  or  tools 
should  be,  however,  a  real  reason  for  the  establishment  of  a  wage 
incentive,  as  will  be  explained  fully  later.  Although  the  machines 
should  get  out  a  certain  definite  number  of  pieces  per  hour  as  a 
result  of  their  automatic  feature,  they  never  seem  to  do  it  when 
there  is  no  extra  incentive.  If  the  operator  has  not  this  incentive, 
it  is  very  easy  to  allow  a  machine  to  "  cut  wind  "  for  a  few  minutes 
before  putting  in  a  new  bar  of  stock.  Or,  if  he  is  working  on  one 
machine  and  another  needs  a  slight  adjustment,  he  will  frequently 
shut  down  the  second  machine  and  continue  working  on  the 
first,  when  just  a  few  moments'  attention  would  enable  the  second 
to  go  on  producing  good  work. 

Reducing  Machine  Repair  Cost. — With  a  proper  incentive, 
the  operator  is  inclined  to  keep  his  machines  in  better  working 
condition  by  repairs  or  seeing  that  they  are  made  before  the 
breaks  occur.  The  machines  are  watched  more  attentively, 
and  slight  breaks  are  prevented  from  developing  into  bad  ones, 
by  immediately  stopping  the  machine  when  the  trouble  starts. 
This  reduces  the  machine  repair  cost  and  also  the  resulting  delay. 

When  the  study  of  the  operations  is  made  and  the  operators 
are  trained  to  their  tasks  they  are  shown  the  fallacy  of  attempting 
to  adjust  their  machines  when  the  dimensions  of  the  part  being 
made  vary  a  bit  but  are  still  well  within  the  desired  limits. 
Operators  generally  seem  to  feel  that  it  is  necessary  to  make 
adjustments  when  they  are  not  really  necessary.  This  frequently 


166      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

results  in  damaging  tools  or  spoiling  several  pieces  of  the  work 
before  the  machine  is  brought  back  to  a  working  condition  as 
good  as  that  existing  when  the  adjustment  was  started.  As 
long  as  the  work  turned  out  is  within  the  desired  limits,  the 
operators  are  merely  to  make  frequent  inspection  trips  to  all 
of  the  machines,  gauging  a  few  pieces  at  each. 

A  special  set-up  and  repair  man  should  be  employed  if  the 
department  is  so  large  that  the  foreman  has  not  time  to  do .  the 
setting  up  himself.  Except  in  extreme  cases,  the  operators 
should  not  be  required  to  do  this  work.  When  not  making  set- 
ups, the  set-up  man  may  well  be  required  to  instruct  the  operators 
under  him,  inspect  the  machines,  make  repairs,  etc.  He  is  to 
make  all  repairs  possible,  although  help  will  frequently  have  to 
be  given  him  when  machines  have  to  be  overhauled. 

Begin  with  Good  Conditions. — When  starting  in  to  do  time 
study  work  in  an  automatic  department,  the  first  thing  is  to 
clean  up  the  department  and  provide  means  for  keeping  it  clean. 
Workmen  cannot  be  expected  to  maintain  their  machines  in 
good  working  order  if  the  machine  and  all  of  its  surroundings 
are  covered  with  oil  that  has  caked  and  not  been  removed.  If 
the  floor  and  other  surroundings  are  kept  clean,  the  operators 
will  generally  take  pride  enough  in  their  own  machines  to  see 
that  they  are  kept  clean  also.  Unless  the  operators  are  watched 
carefully,  they  are  likely  to  feel  that  the  oil  guards  are  a  hindrance 
and  consequently  leave  them  off.  This  is  one  of  the  principal 
reasons  why  some  departments  become  so  thoroughly  besmeared 
with  cutting  oil  and  compound.  These  guards  must  be  kept  in 
position  when  the  machines  are  running  and  where  one  is  missing, 
a  new  one  should  be  provided. 

It  is  next  necessary  to  see  that  all  machines  are  in  first-class 
working  condition.  Although  the  foreman  may  think  that  all 
of  the  machines  in  his  department  are  in  good  condition,  if  an 
attempt  is  made  on  any  machine  to  operate  at  the  maximum 
speed  consistent  with  good  work,  it  will  usually  be  found  that 
there  are  some  attachments  missing,  the  compound  pump  does  not 
work  just  as  it  should,  or  any  one  of  many  other  minor  evils 
will  appear.  To  see  that  all  machines  are  in  good  condition, 
it  is  well  to  start  a  time  study  man  taking  studies  on  a  group  of 
about  10  machines.  He  should  record  all  time  lost  for  any 
reason  whatever.  This  will  quickly  call  his  attention  to  those 
faults  which  should  be  rectified. 


TIME  STUDY  ON  AUTOMATICS 


167 


The  Tool  Data  Sheet. — While  the  machines  are  being  put  into 
condition,  the  time  study  man  should  make  out  a  tool  data  sheet, 
Fig.  67a,  for  the  work  that  is  on  the  machines.  A  great  deal  may 
be  learned  from  a  study  of  the  data  on  these  sheets.  With  the 
information  on  the  jobs  as  they  are  being  run,  it  is  now  necessary 
to  build  up  a  new  tool  data  sheet  for  each  of  the  jobs,  filling  in 
the  speeds  and  feeds  desired  in  place  of  those  in  actual  use. 

Where  the  same  job  is  running  on  two  or  more  machines,  it 
will  frequently  be  found  that  widely  different  feeds  and  speeds 
are  in  use  for  the  same  tools  on  the  same  cuts.  On  one  job  it  is 


SKETCH  OF  PIECE  WITH  TOOLS  IN  POSITION 

3ART   NAME 

PART    NO. 

TYPE  AMD  SIZE.  OF  MACH 

NE. 

MACHINE  NO. 

MATERIAL 

HARDNESS 

SHOW  DIMENSIONS 

:UTTIN 

TO 

REMARKS  ON  SPECIAL  CONDITIONS 

OPERATOR                                      OBSERV 

•R 

9PE  RATION 
NO. 

OPERATION 
NAME 

OPER. 
TIME 

MAX. 
DIAM. 
OF  CUT 

R.P.P 

LENGT> 
.     OF 
CUT 

DEPTH 
OF 
CUT 

METAL 

REMOVED 
PERtllN 

FEED 
PER 
REV. 

CUT- 
TING 
SPEED 

TOOL 

LIFE  OF 
TOOL 

WMBER 

NAME 

STEEL 

FIG.  67a. — Tool  data  sheet. 

recalled,  a  small  pinion  was  being  made  on  three  machines,  two 
Clevelands  and  a  large  Acme.  On  one  of  the  Clevelands  a 
very  high  feed  and  speed  on  the  form  tool  operation  which  con- 
trolled the  remainder  was  being  used.  The  other  Cleveland, 
of  the  same  size  and  general  condition,  was  running  at  a  low  speed 
and  a  medium  feed,  while  the  Acme  was  a  fair  average. 

In  building  up  the  theoretical  tool  data  sheets,  it  is  well  in 
starting  to  use  tables  of  feeds  and  speeds  as  furnished  by  most 
of  the  high  speed  steel  makers.  Later,  this  data  can  be  supple- 
mented by  the  results  obtained  in  practice.  In  many  cases 
however,  on  special  alloy  steels,  it  will  be  necessary  to  determine 
what  speeds  are  to  be  used  without  this  help.  However,  the 
tool  data  sheets  for  the  jobs  as  running  will  serve  as  a  basis.  It 
is  well  to  use  the  highest  feed  and  speed  that  is  thought  to  be 
practicable.  When  the  tool  data  sheets  are  made  up,  the  jobs 
on  the  machines  should  be  brought  to  the  desired  condition  and 
started  working  on  that  basis.  At  this  point,  considerable 
patience  must  be  exercised  by  the  time  study  man  and  all  con- 


168      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

nected  with  the  work  as,  generally,  when  he  has  the  machines  to 
run  as  desired,  he  will  find  that  some  of  the  tools  do  not  stand  up 
well  enough  to  warrant  the  speed  or  feed  used.  Before  conceding 
that  the  standard  is  too  high,  he  must  be  very  sure  that  the 
machines  and  tooling  are  in  the  proper  condition.  There  are 
any  number  of  reasons  why  tools  do  not  stand  up  properly,  and 
only  too  frequently  the  experimenter  blames  his  troubles  on  the 
speed  as  the  condition  most  easily  remedied. 

At  this  point  also,  one  must  remember  that  the  feed  per 
revolution  has  very  little  effect  on  the  heating  of  the  tool,  this 
trouble  being  almost  entirely  dependent  on  the  surface  speed  of 
the  cut.  The  feed  per  revolution  used  generally  depends  on  the 
capacity  of  the  machine  and  on  the  finish  desired. 

Changing  the  Methods. — Before  condemning  the  surface 
speed  the  machine  and  tools  should  be  very  carefully  studied. 
The  trouble  may  be  due  to:  loose  or  worn  bearings;  loose  or  worn 
tool  holders;  tool  holders  too  lightly  constructed;  tools  improperly 
set;  tools  improperly  ground;  tools  improperly  hardened;  turrets 
too  loose;  cams  too  loose;  lack  of  proper  coolant  and  lubricant; 
slipping  belt  and  many  other  lesser  evils. 

One  of  the  principal  troubles  as  a  rule,  is  the  hardness  of  the 
tools  used.  Sufficient  precautions  are  seldom  taken  in  hardening 
tools.  Careful  attention  may  be  paid  to  the  production  parts; 
they  are  inspected,  tested  for  hardness,  polished,  etc.,  but  in 
the  same  departments  the  tools  are  merely  given  to  a  man  to 
be  heated  and  quenched  according  to  his  best  judgment,  after 
which  they  are  sent  directly  to  the  tool  stock  or  the  tool  grind- 
ing department  without  further  inspection.  Unless  the  tools 
are  of  the  proper  hardness,  they  will  not  hold  their  edges  and  will, 
as  a  result,  quickly  burn  up.  The  present  tendency  to  use 
several  kinds  of  high  speed  steel  aggravates  the  trouble  experi- 
enced with  tools,  because  it  tends  to  give  more  chances  for  the 
wrong  hardening  process,  as  most  of  the  various  steels  require 
a  slightly  different  quenching  temperature  or  handling.  The  use 
of  only  one  or  two  kinds  of  high  speed  steel  is  consequently  strongly 
advised.  Determine  on  one  or  two  brands  and  stick  to  them. 

The  cams  used  should  be  studied  carefully  to  make  sure 
that  the  feeds  obtained  from  them  are  uniform.  Sudden  jumps 
in  the  feed  of  a  tool  such  as  might  be  caused  by  a  nick  or  flat  on 
a  cam  are  hard  on  tools  and  work,  as  they  are  liable  to  break 


TIME  STUDY  ON  AUTOMATICS  169 

the  tool,  loosen  the  holder  or  start  a  " chatter"  on  the  work.  It 
will  frequently  be  found  desirable  to  lay  out  and  prepare  new 
cams  for  many  parts  unless  the  department  under  consideration 
is  exceptional,  as  there  is  a  strong  tendency  to  use  any  cam  that 
gives  approximately  the  desired  conditions,  rather  than  go  to  the 
trouble  and  expense  of  preparing  a  new  one.  This  is  frequently 
false  economy  if  the  job  is  expected  to  run  for  more  than  a  week, 
because  the  new  cam  will  often  effect  a  material  saving  in  time. 

How  Many  Tests  to  Make. — After  speeding  up  the  machines 
to  the  figures  as  set  down  on  the  theoretical  tool  data  sheet,  some 
of  the  tools  may  stand  up  well  enough  to  warrant  a  still  greater 
increase.  This  is  advisable  wherever  possible,  not  only  for  the 
added  production  but  for  the  determination  of  new  standards. 
It  is  advisable  to  run  tests  on  as  many  different  jobs  as  possible 
to  determine  just  what  the  maximum  practicable  feeds  and  speeds 
are  for  the  various  qualities  of  finish  desired. 

In  order  to  determine  the  number  of  machines  that  are  to  be 
controlled  by  one  operator,  it  is  first  necessary  to  group  certain 
classes  of  work  and  machines.  That  is,  plain  cut  off  machines 
should  be  all  together,  the  machines  to  handle  the  simpler 
drill  and  ream  jobs  should  be  together  and  then  the  more 
complicated  jobs  with  special  taper  tools,  dies,  etc.  This  forms 
a  classification  for  the  operator  also.  Cutoff  work,  for  instance, 
calls  for  little  skill;  while  the  best  operators  must  be  on  the  jobs 
which  require  the  taper  tools,  cross  drilling  attachments,  etc. 
An  operator  should  be  given  enough  machines  so  that  his  time 
will  be  approximately  75  to  80  per  cent  occupied  by  the 
changing  of  tools,  stocking  his  machines,  adjusting  tools,  in- 
specting work,  oiling  his  machines  and  the  other  routine  opera- 
tions which  he  must  perform.  As  a  basis  for  making  studies,  it 
is  well  to  give  an  operator  from  four  to  seven  machines,  determin- 
ing the  time  he  will  be  occupied  from  an  estimate. 

The  Final  Rate  Analysis  Sheet. — With  the  machines  running 
properly  and  the  proper  number  of  machines  assigned  to  each 
operator,  the  final  studies  are  to  be  made  for  the  setting  of  stand- 
ard time  for  rodding  or  stocking  the  machines ;  changing  various 
types  of  form  tools;  changing  drills;  changing  cut-off  tools; 
removing  chips;  gauging  work,  oiling  machines  and  interference. 

These  standards  will  vary  on  different  types  and  sizes  of 
machines  and  also  with  the  shapes  and  styles  of  tools.  However 


170      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


it  will  be  found  as  a  rule  that  on  a  certain  type  of  machine,  all 
sizes  of  bar  stock  used  on  that  machine  require  practically  the 
same  amount  of  time  for  stocking.  Some  tools  will  require  the 
same  time  for  changing  on  all  machines..  Time  is  allowed  for 
removing  chips  largely  for  its  psychological  value,  for  although 
the  time  allowed  is  generally  small  its  presence  on  the  final  rate 
analysis  sheet  has  a  good  effect  on  the  operator.  By  interference 
is  meant  the  time  that  one  machine  is  not  producing,  caused  by 
the  operator's  inability  to  give  it  the  necessary  attention,  because 
busy  with  another.  It  is  generally  nearly  a  function  of  the 
number  of  bars  of  stock  that  have  to  be  put  into  the  machine. 

The  studies  will  be  made  on  the  time  study  sheet,  Form  676. 
Studies  extending  over  a  period  of  about  2  weeks  on  any  one  type 
of  machine  should  be  sufficient  for  setting  the  standard  if  a  variety 
of  jobs  are  being  worked  on.  Of  course,  if  a  single  job  is  being 
run  during  the  entire  time  the  standards  may  not  be  applicable 
to  other  jobs  which  come  later.  While  taking  these  times,  how- 


ESTABL 

SHED    STANDARD  TIMES  IN  MINUTES 

BROWN  AND  SHARPE. 

CLEVELAND 

00 

0 

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5/8 

7/8 

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moo 

15.00 

15.00 

4fttfc£fflfe^  "tt^4 

if.  on 

7WO 

<t(l.flfl 

^000 

FIG.  676. — Time  study  sheet. 

ever,  the  time  study  man  should  instruct  the  operator,  reducing 
the  delays  as  much  as  possible  and  removing  the  unnecessary 
ones.  Due  to  the  fact  that  after  the  study  the  operator  will  have 
to  operate  more  machines  at  one  time  than  he  has  previously, 
considerable  training  of  the  men  is  usually  necessary  before  they 
are  capable  of  handling  the  machines  properly. 

Choosing  a  Standard. — The  rates  are  to  be  set  on  the  assump- 
tion that  the  operator  has  sufficient  tools,  properly  ground, 
supplied  to  him.  Too  often  it  is  the  practice  to  allow  the  operator 
to  grind  his  own  tools  and  most  of  them  by  hand.  This  is  uneco- 
nomical. In  the  first  place,  in  grinding  tools  by  hand,  it  is 


TIME  STUDY  ON  AUTOMATICS 


171 


practically  impossible  to  have  them  ground  with  the  proper 
rake.  Frequently,  they  are  considerably  out  of  true.  Then  too, 
if  the  operator  is  to  grind  the  tool,  he  must  leave  his  machines, 
which  is  bad  practice.  The  tool  grinders  should  be  located 
centrally,  and  some  one  person  be  made  responsible  for  the 
grinding;  if  necessary  the  operator  can  take  the  dull  tools  to  the 
tool  grinder  and  leave  them,  returning  for  them  later  and  using 
one  of  his  extra  tools  in  the  meantime.  In  a  large  department  it 
is  worth  while  to  have  a  boy  make  regular  trips  to  all  machines, 
picking  up  dull  tools  and  delivering  those  re-ground. 

After  sufficient  studies  have  been  taken  for  the  setting  of  the 
standards,  the  times  required  for  various  types  of  delay  are 
summarized  by  size  and  type  of  machine  and  from  these  sum- 
maries the  standards  are  set.  All  times  which  have  been  noted 
on  the  studies  as  unusual  or  not  allowable  should  be  eliminated 
before  trying  to  determine  the  standard. 

The  standard  chosen  should  as  a  general  rule  be  less  than  the 
average  of  all  the  times  and  should  be  the  time  which  occurs 
most  frequently  in  case  there  is  any  one  time  or  times  that  stand 
out.  This  is  done  on  the  basis  that  this  time  is  what  should 
ordinarily  be  required.  However,  this  rule  cannot  be  used  at 
all  times  and  all  conditions  must  really  be  judged  after  due 
consideration  of  all  factors. 

Allowing  for  Delays. — It  should  be  remembered  in  setting 
the  standards  that  the  delays  on  automatic  machine  work  are  as 
a  rule  a  small  percentage  of  the  actual  operating  time,  and  as  a 
result,  a  50  per  cent  error  in  a  standard  might  effect  by  only 


DATE 

OBSERVER 

PART  NAME 

PART  NO. 

MACHINES  PER 
OPERATOR 

OPERATOR 

MACHINE  SIZE  AND  TYPE 

MACHINE  NO- 

WFORIWIE 

DESCRIPTION  OF  DELAY 

FIG.  67c. — Tabulation  of  standard  cutting  time. 

1  or  2  per  cent  the  possibility  of  making  the  task.  Consequently 
it  is  always  well  to  be  generous  when  establishing  the  standards, 
and  the  operator  should  be  given  the  benefit  of  the  doubt. 

After  the  standards  are  established  they  should  be  tabulated 
for  later  use  in  setting  the  rates,  as  on  Form  67c. 


172      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

How  to  Set  a  Rate. — In  order  to  set  a  rate,  it  is  now  only 
necessary  to  establish  the  time  per  piece,,  the  number  of  pieces 
from  bar  of  stock  and  the  tool  data  sheet,  as  follows,  using  B 
&  S  No.  2  G  standards. 

Piece  2|  in.  long  bar  stock  12  ft.  long  Life  of  cut  of  tool  300  pieces 

Approximately  55  pieces  per  bar  Life  of  drill  300  pieces 

Time  per  piece  1.00  min.  Life  of  spot  drill  2000  pieces 

Life  of  form  tool  200  pieces  Per  10-hour  day 

Feed  10  bars  per  day 1  . 00  ea.  =  10 . 00  min. 

Interference  10  bars  per  day 1 .50  ea.  =  15 . 00  min. 

Change  from  tools  three  times 7.00  ea.  =  21 .00  min. 

Change  cut  off  two  times 5 . 00  ea.  =  10 . 00  min. 

Change  drill  two  times 3 . 00  ea.  =  6 . 00  min. 

Oil  machine  two  times 2 . 50  ea.  =  5 . 00  min. 

Miscellaneous  interference =  40 . 00  min. 

Remove  chips  two  times 3 . 00  ea.  =  6 . 00  min. 


Allowable  delay 113 . 00  min. 

Possible  minutes  per  day. 600 . 00  min. 

Delay 113 . 00  min. 


Productive  time  ...............................  487  .  00  min. 

Production  time  487.00 

7f^.  —        —  :  —        —  i~7\n  =  487  pieces  per  day 

Time  per  piece  1.00 

or  48.7  task  per  hour 
Time  allowance  per  piece  --~  =  1.231  min. 


The  Task  and  Bonus  Plan.  —  Wage  incentives  on  automatic 
screw  machines  can  best  be  based  on  the  task  and  bonus  plan, 
on  which  basis,  if  the  task  of  46.7  pieces  per  hour  is  made,  a 
bonus  of  20  to  25  per  cent  is  given  to  the  operator  with  all  pieces 
over  the  task  carrying  a  rate  similar  to  straight  piece  work.  The 
object  of  the  task  and  bonus  plan  is  to  require  a  certain  minimum 
production  before  any  incentive  is  paid. 

The  rate  having  been  set,  a  list  of  the  tools  required  on  the 
job  and  an  instruction  sheet  showing  the  set-up  with  dimensions 
for  placing  all  of  the  tools  are  prepared  for  future  guidance. 

Time  studies  of  automatic  machines  are  thus  seen  to  present 
few  difficulties  compared  with  studies  on  other  machine  tools. 
It  is  largely  a  question  of  seeing  that  machine  and  tools  are  in 
condition  and  then  making  proper  allowances.  It  is  the  varying 
human  factors  in  machine  operation  that  cause  the  big  difficulties 
in  time  study  work. 


CHAPTER  XV 
WHAT  A  COST  SYSTEM  CAN  DO  FOR  YOU 

Nearly  all  progressive  manufacturing  executives  are  constantly 
on  the  lookout  for  methods  by  which  they  can  reduce  the  cost 
of  their  products.  However,  they  commonly  do  it  by  the  obser- 
vational method :  that  is,  they  stroll  through  the  plant  and  when 
they  see  a  condition  or  a  method  that  does  not  look  just  right, 
they  set  some  one  to  examining  it  to  find  out  if  that  method  cannot 
be  bettered.  Often  considerable  savings  are  effected  in  this 
way;  often,  too,  conditions  or  methods  which  to  the  eye  appear 
inefficient,  are  necessary  and  cannot  be  bettered;  but  more  often 
the  extravagant  and  inefficient  methods  are  not  apparent  to  the 
casual  observer. 

Cost  Figures  an  Aid. — The  effort  to  reduce  the  cost  of  the 
product  is  at  the  bottom  of  all  betterments  in  manufacturing 
methods.  But  betterments  made  through  the  observational 
method  are  apt  to  be  spotty,  and  many  which  might  be  made  are 
more  than  apt  to  be  overlooked.  The  certain  way  to  catch 
expensive  methods  is  through  the  medium  of  a  correctly  designed 
and  accurate  cost  system  which  presents  to  the  executive  at 
frequent  intervals,  monthly  at  least,  all  elements  of  his  costs  in 
comparison  with  those  same  costs  for  previous  months  and 
periods. 

The  general  manager  of  one  machine  shop  on  the  first  of  each 
month,  takes  home  with  him  cost  reports  which  visualize  for  him 
the  activity  of  the  different  departments  of  his  plant  for  the 
preceding  month.  The  next  day  when  he  arrives  at  his  office, 
certain  erring  department  heads  and  foremen  are  very  likely  to 
receive  a  call  from  the  "old  man"  and  have  some  unpleasant 
figures  put  before  them.  The  cost  figures  which  this  executive 
receives  do  not  show  exactly  what  is  wrong  in  the  plant,  but 
they  do  show  in  what  department  things  are  going  amiss  and  who 
is  responsible.  At  these  first  of  the  month  lectures  he  is  able  to 
pin  the  responsibility  on  the  right  men  and  effectively  set  them 
going  to  search  out  the  troubles  for  which  they  are  responsible. 

Cost  figures  can  be  made  to  serve  as  an  index  of  the  methods 
being  used  in  any  phase  of  manufacturing. 

173 


174      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Many  Savings  Are  Effected. — In  one  plant,  the  cost  figures 
showed  an  increase  in  the  expenditure  for  lubricating  oil  for  one 
month  over  the  preceding  one.  An  investigation  showed  that 
the  purchasing  agent  was  attempting  to  make  a  showing  by  buying 
cheaper  oil,  which  was  resulting  in  a  greater  total  expenditure 
for  all  of  the  productive  departments. 

In  another  machine  shop,  an  increased  use  of  oil  in  the  auto- 
matic machine  department  led  to  an  investigation,  which  by  its 
promptness  probably  saved  a  loss  of  $50,000  worth  of  machinery 
that  would  have  been  ruined  in  another  month  or  two.  In  this 
instance,  oil  was  forced  through  the  bearings  of  the  machines 
under  pressure.  Too  light  a  grade  of  oil  was  being  purchased 
which,  under  pressure,  went  through  the  machines  too  rapidly, 
at  the  same  time  improperly  lubricating  them.  The  monthly 
comparison  of  oil  expense  in  this  department  showed  that  some- 
thing was  wrong  before  the  improper  oil  had  been  used  long 
enough  to  seriously  damage  the  machines. 

The  use  of  supplies,  of  which  the  foregoing  instances  are 
samples,  is  seldom  checked  as  closely  as  its  importance  warrants, 
because  the  total  expenditure  for  shop  supplies  is  seldom  more 
than  a  very  small  percentage  of  the  expenditures  for  raw  materials. 
It  is  customary  to  pay  a  great  deal  more  attention  to  the  waste 
of  raw  materials  than  to  the  waste  of  supplies.  In  fact,  unless 
cost  figures  are  so  developed  that  they  show  the  actual  use  of 
supplies  by  departments,  very  little  line  can  be  had  by  the 
executive  on  the  amount  being  used  compared  with  what  should 
be  used. 

A  Workman's  Ingenuity. — It  may  seem  as  though  there  was 
very  little  connection  between  the  cost  figures  and  the  skill  of 
individual  workmen,  yet  there  was  an  instance  where  a  cost 
report  showed  that,  of  two  workmen  performing  the  same  opera- 
tion, one  turned  out  nearly  twice  as  much  as  the  other.  When 
the  foreman's  attention  was  called  to  this  by  the  general  manager 
he  discovered  that  the  less  productive  workman  was  performing 
five  operations  on  his  part — the  better  workman  by  his  ingenuity 
had  combined  two  of  his  operations  into  a  single  one.  As  the 
two  operations  were  the  longest  and  most  difficult  on  the  part, 
his  ingenuity  had  enabled  him  to  increase  his  production.  The 
new  method  was  naturally  taught  to  the  other  workman,  and  in 
a  very  short  time  his  production  reached  that  of  his  fellow. 
This  is  not  uncommon;  in  fact  next  to  time  studies  of  each  work- 


COST  SYSTEM  ADVANTAGES  175 

man  and  operation,  the  cost  system  is  the  best  way  to  gage  the 
relative  ability  of  the  various  men. 

When  we  come  to  consider  machines,  the  cost  system  is 
invaluable.  The  present  tendency  is  to  substitute  a  machine  for 
a  hand  operation  wherever  possible.  This  is  proper  enough 
if  the  machine  can  do  the  work  better  or  less  expensively  than  a 
man.  To  the  manufacturer,  a  machine  of  itself  is  nothing.  It 
is  valuable  only  if  by  it  the  cost  of  production  can  be  reduced. 
There  are,  for  instance,  most  ingenious  systems  of  conveyors 
which  more  than  offset  the  savings  in  men's  wages  by  the 
increased  cost  of  depreciation,  maintenance  and  operation.  If 
such  a  conveyor  does  not  increase  production  enough  to  cut  the 
final  cost  of  the  product,  it  is  not  admirable,  nor  is  it  good  judg- 
ment to  install  it.  On  the  other  hand  it  is  frequently  good 
economy  to  invest  $25,000  or  $30,000  in  a  single  machine. 
Instances  of  this  sort  will  occur  to  every  machine  shop  executive. 
But  whether  or  not  such  an  investment  is  a  money  making 
one,  cannot  safely  be  determined  by  impressions — cost  figures 
must  be  the  test. 

Even  in  the  use  of  machines,  cost  figures  can  be  made  to 
indicate  possible  economies  and  betterments.  In  one  plant 
the  most  important  operation  for  the  three  different  sizes  of  the 
product  was  performed  on  three  large  machines  of  different 
sizes.  Each  of  these  machines  was  best  adapted  to  perform  the 
operation  on  the  product  of  the  size  for  which  it  was  designed. 

How  Costs  Set  Selling  Policies.^But  the  customers  of  this 
concern  were  pounding  the  sales  department  for  quicker  and 
yet  quicker  deliveries.  As  the  smallest  size  of  the  product  was 
the  most  popular  seller,  it  had  become  the  custom  for  the  super- 
intendent to  route  the  smaller  sizes  to  the  larger  machines  in 
order  to  fulfil  the  unduly  early  deliveries  dates  promised  by  the 
salesmen.  This  is  a  condition  which  many  plant  managers 
face  where  the  sales  department  dominates  the  plant.  On  the 
face  of  it,  it  might  seem  all  right  to  route  the  stuff  that  had  been 
sold  to  machines  which  had  idle  time.  In  no  way  but  through 
the  medium  of  a  cost  system  could  the  fact  have  been  determined 
that  this  was  resulting  in  a  considerable  loss.  In  fact,  the  loss 
amounted  to  about  $32,000  a  year. 

Choosing  a  Policy. — In  a  general  way,  the  management  knew 
that  the  situation  was  not  the  most  desirable  one,  but  they  did 
not  realize  in  figures  how  much  the  less  suitable  machines  were 


176      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

used,  the  extent  to  which  output  was  qurtailed,  and  the  extent 
to  which  the  normal  operating  conditions  were  upset.  When 
cost  figures  were  developed  it  became  apparent  immediately 
that  when  the  smaller  product  was  made  on  its  proper  machine 
it  was  made  at  a  profit  of  6  cents  each.  But  when  it  was  made 
on  the  larger  machine,  there  was  a  loss  of  1  cent  each.  These 
machines  turned  out  7,000  units  a  day,  which  meant  a  loss  of 
$70  a  day  when  the  large  machines  worked  on  the  small  goods, 
while  a  profit  of  $420  a  day  per  machine  was  made  when  the 
goods  were  turned  out  on  the  machine  best  adapted  to  them. 

These  figures  resulted  in  fundamental  changes  in  the  manage- 
ment. Now,  instead  of  forcing  the  plant  to  make  what  the 
sales  department  chooses  to  sell,  schedules  of  the  possible  econo- 
mical production  of  the  various  types  of  product  are  presented 
monthly  to  the  sales  department,  showing  the  possible  produc- 
tion of  each  type,  of  orders  on  hand,  and  the  additional  orders 
which  the  plant  can  handle.  It  is  now  up  to  the  sales  department 
to  sell  what  the  plant  can  make  at  a  profit.  This  led  to  the 
installation  of  a  production  planning  department  in  the  plant 
which  has  resulted  in  even  greater  increases  in  production  and 
reduction  in  costs. 

Even  in  plants  that  have  engineering  departments  it  is  not 
uncommon  for  the  executive  to  find  that  more  money  than  neces- 
sary is  being  spent  on  materials.  For  instance,  in  one  shop  a 
certain  part  had  been  machined  out  of  a  plate  of  cast  iron,  about 
i  in.  thick.  Its  finished  dimension  was  J  in.  thick.  Later  it 
seemed  desirable  to  make  this  plate  out  of  copper.  The  speci- 
fications were  changed,  but  the  thickness  was  kept  at  |  in. 
When  cost  figures  were  developed  the  executive  immediately 
put  his  finger  on  the  excessive  cost  of  this  comparatively  unimpor- 
tant part.  When  the  chief  draftsman  was  asked  why  a  f-in. 
thick  copper  sheet  was  necessary,  he  didn't  know.  As  a  matter 
of  fact,  it  wasn't  necessary.  A  copper  sheet  of  very  much  thinner 
gage  was  all  that  was  needed.  Thousands  of  dollars  had  been 
literally  thrown  away  because  the  loss,  which  was  not  apparent 
to  the  eye,  was  quickly  apparent  in  the  cost  report. 

How  Costs  Show  Waste. — In  another  case,  a  sleeve  which 
for  years  had  been  machined  from  bar  stock  is  now  machined 
from  a  casting  at  a  saving  of  about  $350  a  month.  In  another 
plant  it  had  been  customary  for  the  engineering  department  to 
specify  bolts  and  screws  of  the  best  theoretical  size.  Cost 


COST  SYSTEM  ADVANTAGES  177 

figures  showed  an  excessive  expense  for  this  material  and  finally 
a  conference  of  the  superintendent,  chief  engineer  and  the  head 
of  the  cost  department  reduced  the  number  of  screws  and  bolts 
used  to  about  one  tenth  the  former  number.  It  was  perfectly 
possible  to  use  these  standardized  parts  in  many  places  where 
previously  special  screws  had  been  made.  This  made  it  possible 
to  buy  many  of  the  screws  and  bolts  from  outside  at  much  less 
than  it  was  possible  to  make  them  inside  the  plant. 

Every  good  cost  system  reports  monthly  the  amount  of  waste 
made  in  each  department.  If  it  appears  that  an  excessive 
amount  of  material  is  being  used  investigation  will  usually  show 
some  better  method  of  manufacturing.  Then  too,  the  fluctua- 
tions of  the  amount  of  waste  made  from  month  to  month  comes 
to  view  quickly  and  shows  up  any  bad  tendencies  which  usually 
can  be  traced  to  poor  supervision.  In  one  machine  shop,  the 
chief  executive  was  able  to  reduce  the  waste  in  one  department 
by  47  per  cent.  This  later  resulted  in  saving  thousands  of  dollars 
a  year. 

Simplicity  Is  Essential. — Many  executives  however  will 
admit  all  this  and  yet  will  object  to  a  cost  system  which  will 
show  all  of  these  conditions  in  his  plant  on  the  grounds  that 
it  would  be  too  complex  and  too  expensive  to  operate  and  would 
involve  too  much  red  tape.  Admittedly  that  is  a  fault  of  many 
cost  installations  which  often  springs  from  the  fact  that  when 
an  executive  finally  accepts  costs  as  valuable,  he  is  apt  to  become 
enamored  of  the  cost  system  itself.  For  instance,  one  concern 
of  only  medium  size  currently  developed  such  elaborate  reports 
and  tabulations  that  more  than  40  clerks  were  kept  busy  com- 
piling them.  The  figures  they  developed  were  undoubtedly 
interesting  and  ingenious,  but  most  of  them  were  of  very  little 
value  as  an  aid  to  the  management.  In  fact  the  company  had 
been  making  but  slight  profits.  A  careful  investigation  showed 
that  what  profits  the  manufacturing  departments  had  been 
making  had  been  largely  absorbed  in  maintaining  the  cost 
department.  That,  of  course,  was  not  good  sense. 

The  elaboration  and  intricacy  of  the  cost  system  and  the 
figures  developed  by  it  is  not  a  criterion  of  the  value  of  the  system; 
on  the  other  hand  we  believe  firmly  that  cost  accounting  methods 
which  give  figures  of  most  value  to  the  management  are  invari- 
ably simple.  Commonly  it  is  possible  to  develop  cost  figures 
which  will  throw  a  bright  light  on  all  phases  of  manufacturing 
.12 


178      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

with  no  more  clerks  than  are  already  employed  in  the  factory 
offices.  Certainly  it  would  be  a  plant  of  immense  size  or  one 
turning  out  an  exceedingly  intricate  product  which  would  require 
more  than  a  half  dozen  or  so  clerks  engaged  solely  on  cost  work. 

It  seems  necessary  for  brevity's  sake  to  refer  to  cost  systems. 
We  dislike  the  word  "system,"  for  it  smacks  not  only  of  red 
tape,  but  of  uniformity.  There  is  no  one,  nor  several,  cost  systems 
which  are  adaptable  to  all  plants.  There  are  no  two  machine 
shops  making  identical  products  and  using  identically  the  same 
methods  of  manufacturing.  The  fundamental  principles,  how- 
ever, for  gathering  the  cost  of  labor,  the  cost  of  material,  and  for 
spreading  the  overhead  expense  may,  and  usually  should  be 
uniform  within  an  industry;  but  the  actual  routine  will  differ 
with  every  plant.  In  fact  often  the  method  of  spreading  the 
overhead  expense  will  have  to  differ  in  the  different  departments 
of  a  single  plant  It  is  conceivably  possible  to  devise  a  system 
which  can  be  forced  into  several  machine  shops,  but  if  that  is 
done,  the  shop  itself,  the  personnel  of  the  management  and  the 
methods  of  manufacturing  will  have  to  be  radically  changed  to 
fit  the  system.  That  is  not  the  proper  way  to  install  costing 
methods.  The  most  important  thing  for  the  machine  shop  is 
profit.  Costing  is  valuable  only  as  it  aids  this.  Therefore, 
the  cost  accounting  methods  should  be  adapted  to  the  conditions 
as  they  exist  in  the  plant  rather  than  vice  versa. 

Problem  of  Selection.  — It  may  seem  that  if  the  costing  methods 
needed  by  every  plant  are  different,  the  problem  of  choosing 
the  right  one  is  exceedingly  difficult  and  touchy.  This  is  not 
necessarily  true.  However,  it  is  much  better  for  the  executive 
to  go  slowly  in  choosing  new  methods  and  finally  to  adopt  those 
which  appeal  to  his  common  sense.  It  is  easily  possible,  in  a 
passion  for  exact  costs,  to  carry  costing  to  a  ridiculous  extreme, 
tracing  down  every  fraction  of  a  cent  to  its  lair.  We  do  not 
approve  of  inaccurate  costing,  but  it  is  not  good  sense  to  carry 
it  to  such  a  fine  point  that  as  the  scientists  say — "The  error  of 
observation  is  greater  than  the  error  of  computation."  We 
mean  by  that,  why  spend  money  to  calculate  costs  to  a  fraction 
of  a  cent  when  the  original  date  on  which  they  are  based,  such 
for  instance  as  the  amount  of  time  put  in  by  a  workman,  is 
known  to  be  incorrect  to  the  extent  of  2  or  3  cents?  If  final  costs 
are  accurate  within  one  tenth  of  one  per  cent,  sufficient  accuracy 
has  been  obtained.  Usually  a  half  of  one  per  cent  is  close  enough. 


COST  SYSTEM  ADVANTAGES  179 

We  have  given  a  great  deal  of  attention  in  this  article  to 
showing  the  values  of  a  cost  system  other  than  as  a  guide  to 
setting  selling  prices,  and  yet  this  latter  use  must  not  be  consid- 
ered unimportant.  Some  executives  object  to  installing  cost 
methods  because,  as  they  say,  competition  sets  their  selling  prices. 
On  the  strength  of  this,  they  feel  that  it  will  do  them  no  good  to 
know  what  their  product  costs  them. 

Cost  Figures  Help  You  Sell. — In  the  first  place,  because  in  some 
businesses  the  price  is  set  by  one's  competitors,  it  is  necessary 
in  that  business  to  get  the  costs  as  low  as  possible.  This  can  be 
done  only  by  bettering  methods  of  manufacture.  And  these 
betterments  can  only  be  surely  discovered  by  means  of  a  cost 
system.  Then  again,  if  competition  is  setting  the  prices  at  a 
point  too  low  to  allow  a  manufacturer  profit,  he  should  know  it. 
It  is  usually  better  to  refuse  business  than  to  take  it  at  a  loss, 
especially  if  the  extent  of  the  loss  is  not  known. 

A  case  in  point  is  that  of  a  concern  with  a  plant  consisting 
mostly  of  a  machine  shop,  and  which  made  17  different  products, 
the  price  of  which  was  set  by  competition.  When  accurate  cost 
accounting  methods  were  installed  in  this  concern,  it  was  dis- 
covered that  13  of  these  items  were  being  manufactured  at  a 
dead  loss.  The  other  four  were  being  made  at  a  price  high 
enough  to  allow  the  business  as  a  whole  a  profit.  The  profit 
on  these  four  lines  was  in  fact  so  high  that  competition  was 
rapidly  taking  business  away  and  before  long  the  concern  would 
probably  have  been  bankrupt.  With  the  definite  figures  before 
him,  the  president  of  this  concern  decided  to  eliminate  entirely 
nine  of  the  13  losing  lines.  Methods  were  found  by  which  two 
of  these  unprofitable  lines  could  be  put  on  a  profit  making 
basis  through  betterments  of  production.  It  was  decided  to 
continue  manufacturing  the  other  two  at  a  slight  loss,  but  orders 
would  be  taken  only  in  conjunction  with  orders  for  other  lines. 
The  second  year's  operation  under  this  new  policy  showed  that 
on  only  one  half  as  much  gross  sales,  four  times  as  much  profit 
had  been  made  as  was  customary,  and  this  all  occurred  in  pre- 
war years,  when  rising  markets  had  nothing  to  do  with  it. 

In  later  chapters  we  shall  outline  the  methods  of  cost  account- 
ing which  have  been  found  best  adapted  to  the  machine  shop 
industry,  showing  how  different  conditions  call  for  different 
methods.  The  methods  which  will  be  described  are  those  in 
actual  use  in  machine  shops. 


180      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Don't  Make  Cost  Figures  Your  God. — Lest  any  readers  become 
overly  enthusiastic  on  cost  accounting,  we  want  to  lay  stress  on 
two  points  which  experience  shows  are  warnings  sometimes 
needed.  First,  cost  accounting  is  not  an  end  in  itself.  The  aim 
of  business  is  profits.  Cost  accounting  is  of  value  only  as  it 
aids  the  manufacturer  to  make  profits.  The  second  warning  is 
that  no  cost  accounting  system  will  of  itself  make  these  profits. 
The  reports  are  inanimate  things  which  can't  of  themselves 
make  industrial  betterments.  They  must  be  intelligently 
studied  by  an  executive  who  has  the  intelligence  to  translate 
their  figures  into  needed  changes  and  the  authority  to  see  that 
these  changes  are  made. 


CHAPTER  XVI 
THE  FUNDAMENTALS  OF  COST 

Go  out  into  your  finished  stock  room  and  examine  carefully 
some  part  which  has  been  manufactured  in  your  plant,  say  a 
crankshaft.  You  can  easily  see  in  it  the  rough  forging  from 
which  it  was  machined.  The  material,  or  most  of  it,  is  still 
in  the  crankshaft.  That  forging  is  the  raw  material,  and  the 
price  paid  for  it  is  the  material  cost  of  the  crankshaft. 

You  can  also  readily  see,  in  your  mind's  eye,  the  various 
workmen  who  perform  the  turning,  grinding  and  other  operations 
on  it.  Perhaps  this  very  morning  you  signed  checks  payable  to 
these  men.  Those  checks,  or  parts  of  each  of  them,  include  the 
direct  labor  cost  of  the  crankshaft.  You  can  practically  see 
that  element  of  cost  in  the  finished  product. 

How  Costs  Reflect  Factory  Operations. — But  perhaps  you 
also  signed  other  checks  today.  There  was  one  for  the  foreman 
of  the  lathe  department.  He  probably  never  touched  the 
crankshaft,  so  you  can't  see  in  the  finished  product  any  evidence 
of  the  work  done  by  him,  but  you  know  that  his  supervision  and 
teaching  were  necessary. 

Then  there  was  that  big  check  in  payment  of  the  coal  bill. 
No  matter  how  carefully  you  examine  the  crankshaft  you  will 
see  no  evidence  of  coal.  A  part  of  that  check  inevitably  got 
into  the  crankshaft  through  a  most  indirect  route — that  of  boilers, 
engines,  shafting,  belting  and  the  lathe. 

When  you  were  making  out  the  payroll  checks,  there  were 
several  to  the  plant  watchmen.  Careful  scrutiny  of  the  crank- 
shaft shows  no  evidence  of  the  money  paid  to  them.  On  second 
thought,  though,  the  mere  presence  of  the  crankshaft  here, 
rather  than  in  some  thieves'  fence,  shows  that  the  watchmen  had 
something  to  do  with  manufacturing  the  crankshaft. 

While  thinking  over  these  elements  of  cost  you  may  reflec- 
tively look  upward.  You  make  a  mental  note  that  a  piece  of 
shafting  is  loose.  You  also  note  that  the  old  building  is  showing 
the  first  signs  of  disintegration.  Sooner  or  later  you  realize 
with  an  unpleasant  jolt,  you  will  have  to  build  a  new  one  to  take 
its  place.  You  haven't  written  any  checks  which  in  any  way 

181 


182      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

can  be  connected  with  the  obvious  depreciation  of  the  plant,  but 
you  realize  only  too  well  that  depreciation  is  a  very  real  expense, 
which  must  be  met  sooner  or  later,  and  the  money  for  erecting 
the  new  building  must  come  from  the  sale  of  this  crankshaft 
and  the  other  parts  which  you  manufacture  and  sell.  It  is 
therefore,  a  part  of  the  ultimate  cost. 

Touching  the  crankshaft  again,  you  note  that  it  is  covered 
with  a  film  of  oil  to  protect  it  from  rust.  That  makes  you  think 
of  the  other  oil  which  you  have  to  pay  for  which  is  used  for  lubri- 
cating the  machines  on  which  the  crankshaft  is  turned.  While 
the  oil  now  on  the  crankshaft  is  in  evidence,  you  can  see  no 
evidence  of  the  lubricating  oil  on  the  finished  product.  It  is  a 
material  however,  which,  although  it  does  not  appear  in  the 
finished  product,  is  a  shop  supply  necessary  to  the  proper  opera- 
tion of  the  plant. 

Most  manufacturers  although  they  may  be  thoroughly  con- 
versant with  their  manufacturing  and  selling  problems,  have  but 
a  hazy  idea  of  what  goes  to  make  up  the  cost  of  their  products. 
They  are  inclined  to  look  upon  cost  accounting  as  more  or  less 
of  a  mystery.  Actually  there  is  no  mystery  whatever  about  it. 
If  the  shop  executives  would  only  look  upon  cost  methods  in  the 
light  of  their  knowledge  of  manufacturing,  they  would  see  that 
each  element  of  costs  and  each  step  in  gathering  them  is  logical, 
and  depends  upon  the  methods  of  manufacturing  used  in  that 
shop.  It  is  possible  to  determine  the  right  methods  of  finding 
cost  for  any  plant  in  any  industry.  In  some,  the  problem  will 
admittedly  be  simple;  in  others,  it  may  be  exceedingly  complex. 
But  it  is  always  a  problem  to  be  solved  not  alone  by  accountants 
but  by  engineers  familiar  with  manufacturing.  They  must,  of 
course,  know  the  principles  of  sound  accounting,  but  cost  finding 
is  a  manufacturing  problem. 

Definition  of  Terms. — Probably  a  great  deal  of  the  haziness 
which  surrounds  cost  accounting  in  the  minds  of  otherwise 
capable  executives,  is  due  to  the  loose  use  of  cost  accounting 
terms.  Inasmuch  as  it  is  our  purpose  to  make  as  clear  as  possible 
the  principles  involved  in  machine  shop  cost  accounting,  we  are 
going  to  assume  that  the  reader  knows  nothing  of  cost  accounting, 
and  start  by  defining  the  terms  we  shall  use. 

(1)  Material  includes  all  matter  which  can  be  directly  measured 
and  identified  as  part  of  the  finished  product,  such  as  castings 
and  forgings. 


FUNDAMENTALS  OF  COSTS  183 

(2)  Supplies  include  all  matter  which  aids  in  the  manufacture 
but  is  not  apparent  directly  in  the  finished  product.     Examples — 
files,  oil,  belting,  brooms,  etc. 

In  one  sense,  of  course,  both  "material"  and  "supplies" 
are  material,  but  for  the  sake  of  nomenclature  we  shall  separate 
them  as  above. 

(3)  Productive  labor  is  that  labor  which  can  definitely  be 
charged  to  the  cost  of  making  or  assembling  some  finished  part 
or  assembly. 

(4)  Non-productive  labor  is  that  labor  which  cannot  be  directly 
charged  to  a  definite  finished  part  or  assembly.     For  example — 
janitors,  watchmen,  truckers,  foremen. 

In  a  way,  perhaps,  the  use  of  the  words  "productive"  and 
"non-productive"  carries  an  unfair  implication.  Accountants 
are  apt  to  refer  to  the  two  classes  as  direct  and  indirect  labor. 
In  the  shop,  however,  the  terms  "productive"  and  "non-pro- 
ductive" are  most  common,  and  it  is  our  aim  to  use  such  expres- 
sions as  will  tie  in  most  closely  with  the  common  language  of 
the  shop. 

(5)  Expense  includes  all  items  of  cost  which  cannot  be  directly 
traced  in  the  finished  product,  but  which  are  necessary  to  main- 
tain, shelter,  instruct,  direct  or  otherwise  aid  productive  labor 
to  produce  and  the  sales  department  to  sell. 

Expense  is  sometimes  called  overhead  or  burden.  There  are 
no  objections  to  the  use  of  either  of  these  terms,  but  it  is  believed 
that  the  word  expense  is  the  one  most  commonly  used. 

(6)  Expense  is  commonly  divided  into  two  headings — factory 
expense,  which  covers  those  intangible  items  that  aid  production, 
and — 

(7)  Selling  expense,  which  includes  all  items  of  cost  that  directly 
or  indirectly  aid   in   distributing  and  selling  of  the   product. 

Certain  items  are  sometimes  difficult  to  assign  to  one  or  the 
other  of  these  two  divisions  of  expense.  The  test  is  this:  If 
your  product  required  no  selling  effort,  if  the  customer  came  to 
the  finished  stock  room  and  removed  the  product,  would  this 
item  of  expense  be  incurred?  If  so,  it  is  a  factory  expense; 
if  not,  it  is  a  selling  expense.  In  other  words,  the  finished  stock 
room  is  the  dividing  line  between  factory  expense  and  selling 
expense. 

Later,  we  shall  discuss  the  detailed  methods  of  gathering  all  of 
the  above  factors  of  costs.  At  present,  our  only  aim  is  to  give 


184      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

the  reader  somewhat  of  a  bird's-eye  view  of  the  subject  and 
perhaps  to  clarify  some  of  the  complications  which  otherwise 
might  confuse  the  man  who  is  unaccustomed  to  solving  cost 
problems. 

Clearing  up  Confusing  Points. — One  of  the  most  confusing 
things  to  a  majority  of  manufacturers  is  the  fact  that  oftentimes 
labor  or  materials  which  ordinarily  are  productive,  finally  find 
their  way  into  the  finished  product  as  non-productive.  For 
instance,  the  mere  physical  appearance  of  a  piece  of  raw  material 
is  not  the  criterion  as  to  whether  it  is  productive  material  or  a 
supply.  It  is  the  use  to  which  it  is  put  which  determines  how  it 
shall  show  in  the  costs.  A  piece  of  bar  steel  may  be  either  an 
expense  or  a  productive  item,  according  to  the  use  to  which  it  is 
put.  Suppose  that  your  finished  product  consists  of  an  assembly 
containing  gears.  You  carry  a  stock  of  bar  steel  from  which  the 
gear  blanks  are  cut.  The  bar  steel  used  in  this  way  is  obviously 
productive  material.  But  suppose  you  have  a  repair  to  make  for 
one  of  your  machine  tools.  You  may  draw  out  the  bar  steel 
originally  intended  to  be  sold  as  part  of  your  regular  product  and 
use  it  to  manufacture  a  gear  for  your  broken  machine  tool. 
This  gear,  and  consequently  the  bar  steel  from  which  it  was 
made,  would  thus  not  be  charged  into  the  goods  in  process 
account  or  to  an  article  sold,  but  would  be  charged  to  expense. 
It  would  appear  ultimately  on  the  expense  analysis  as  material 
used  for  machinery  and  repairs.  That  is  a  typical  example  of 
how  productive  materials  may  become  expense. 

Perhaps  it  may  seem  advisable,  instead  of  buying  a  machine 
tool  from  an  outside  manufacturer,  to  manufacture  the  tool  in 
your  own  shop.  If  so,  this  piece  of  bar  steel  would  find  its  resting 
place  in  the  fixed  asset  account. 

Aside  from  getting  accurate  costs,  it  is  important  in  days  of 
high  taxes,  to  get  the  correct  disposition  of  various  materials 
used,  for  incorrect  reporting  may  result  in  a  considerable  differ- 
ence in  the  tax  statement  at  the  end  of  the  year. 

The  Labor  Question. — It  is  likewise  with  labor.  It  is  seldom 
possible  to  assume  that  any  given  man  is  a  productive  or  a  non- 
productive worker.  Rather  is  it  necessary  to  analyze  the  activity 
of  each  man  by  means  of  his  time  tickets  in  order  to  determine 
from  the  statement  of  his  activity  whether  his  work  was  produc- 
tive or  non-productive.  A  man's  regular  occupation  may  be 
operating  a  milling  machine  on  productive  work,  but  he  may  be 


FUNDAMENTALS  OF  COSTS  185 

temporarily  withdrawn  from  productive  work  and  set  to  work 
for  a  few  hours  on  a  part  which  will  be  used  to  repair  some 
machine.  That  man  will  have  done,  in  the  same  day,  both 
productive  and  non-productive  work,  and  it  is  necessary  to  divide 
his  time  justly  between  the  two  jobs.  If  this  same  workman, 
instead  of  being  put  on  repair  work  were,  at  a  time  when  orders 
were  slack,  put  upon  operations  necessary  to  building  a  machine 
tool  for  the  shop,  his  labor  would,  like  the  material,  end  up  as  a 
fixed  asset,  and  the  cost  of  his  time  would  ultimately  appear  on 
the  equipment  register.  The  nature  of  his  work,  whether  pro- 
ductive or  non-productive,  would  also  determine  whether  a 
part  of  the  expense  of  the  department  in  which  he  worked  should 
be  carried  to  the  goods  in  process  account  or  to  the  fixed  asset 
account.  The  point  we  wish  to  emphasize  is  that  no  one  can 
say  beforehand  that  the  work  of  a  given  man,  or  that  a  given 
kind  of  material,  is  necessarily  productive  or  non-productive. 
This  can  only  be  determined  by  the  use  to  which  it  is  put. 

Controlling  Overhead  Expense. — Perhaps  this  makes  clearer 
why  we  insist  that  correct  cost  accounting  must  be  based  on 
an  accurate  and  comprehensive  knowledge  of  the  processes 
involved  in  the  plant. 

Because  it  is  not  always  so  easy  to  say  just  how  an  element  of 
cost  is  to  be  gotten  into  the  finished  product,  frequently  manu- 
facturers, when  in  doubt  about  an  item,  will  say:  "Oh!  throw 
it  into  the  overhead."  That  is  a  sign  either  of  mental  laziness  or 
of  a  failure  to  grasp  the  fundamentals  of  cost  accounting.  Be- 
cause there  is  bound  to  be  a  certain  amount  of  approximation 
involved  in  distributing  the  expense  to  the  product,  the  aim 
should  rather  be  to  get  as  many  items  of  cost  as  possible  charged 
directly  to  the  proper  unit  of  output.  This  is  especially  true 
when  more  than  one  type  or  size  of  product  is  manufactured, 
which  is  almost  universally  the  condition  in  machine  shops.  It 
is  surprising  to  find  how,  upon  careful  study,  many  items  which 
have  always  been  considered  expense  can  be  allocated  directly 
to  the  proper  product.  All  items  of  expenditure  will,  of  course, 
ultimately  come  into  the  product,  and  it  is  always  more  accurate 
to  charge  them  directly  than  by  percentages. 

But  good  sense  must  govern  the  executive  in  his  attempts 
along  these  lines — for  instance,  it  is  conceivably  possible  to 
allocate  all  power  costs  directly  to  the  product  turned  out. 
Intricate  calculations  could  be  made,  showing  the  number  of 


186      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

horsepower  hours  required  to  turn  the  crankshaft  in  a  lathe. 
The  calculations  getting  all  the  time  more  and  more  intricate, 
could  be  carried  back  through  the  transmission  system  to  the 
coal  pile,  taking  into  consideration  the  exact  amount  of  lubricat- 
ing oil,  wear  and  tear  on  belting,  and  so  on,  caused  by  turning 
that  particular  crankshaft.  Of  course,  it  would  be  ridiculous 
on  the  face  of  it,  to  attempt  such  calculations.  Therefore  to 
avoid  excessive  clerical  expense,  and  to  avoid  making  ourselves 
ridiculous,  we  are  satisfied  to  allocate  power  costs  to  the  control- 
ling section.  We  find  out  what  the  total  cost  of  generating  and 
transmitting  power  is;  we  then  determine  how  much  power  each 
section  or  department  uses  and  spread  that  charge  over  the 
production  of  that  department.  The  detailed  method  of  hand- 
ling this  subject  of  power  will  be  discussed  in  another  chapter. 
We  are  simply  mentioning  it  to  drive  home  the  fact  that  while 
as  a  general  rule  we  want  to  get  as  many  items  as  possible  out 
of  expense  and  into  the  product  direct,  we  still  are  governed  by 
the  rule  that  the  result  must  be  worth  the  effort,  which  it  would 
not  be  if  we  were  to  follow  the  theoretically  possible  methods  of 
getting  the  charge  for  coal  directly  into  the  product. 

Are  All  Elements  of  Overhead  the  Same? — It  has  probably 
occurred  to  most  readers  while  we  have  been  disccussing  the 
nature  of  overhead  expense,  that  all  of  the  elements  of  overhead 
are  not  the  same.  For  instance,  the  salary  of  the  automatic 
machine  department  foreman  can  properly  be  spread  over  all  of 
the  production  of  the  automatic  machines.  The  oil  and  cutting 
compounds  used  for  these  machines  are  also  properly  chargeable 
to  them,  and  to  nothing  else.  It  probably  would  not  occur  to 
anyone  to  charge  any  part  of  the  salary  of  the  automatic  depart- 
ment foreman  into  the  overhead  of  the  foundry.  But  there  are 
items  of  expense,  which  cannot  be  put  directly  into  the  overhead 
of  any  productive  department.  The  superintendent's  time,  for 
instance,  is  taken  up  with  supervision  of  both  of  these  depart- 
ments. He  also  probably  gives  some  attention  to  the  efficient 
operation  of  the  power  house.  Therefore  each  of  these  depart- 
ments should  bear  a  part  of  this  item  of  expense.  How  his 
salary  is  divided  among  the  various  departments  will  be  discussed 
later.  It  is  evident,  however,  that  we  can  divide  expense  in 
two  ways  not  previously  noted.  Some  of  it,  in  other  words, 
is  expense  directly  chargeable  to  a  productive  department,  as 
is  the  case  with  the  salary  of  the  foreman  of  the  automatic  depart- 


FUNDAMENTALS  OF  COSTS  1&7 

ment.  Other  items  of  overhead,  while  not  having  a  direct 
connection  with  the  productive  departments,  are  nevertheless 
necessary  to  the  best  functioning  of  the  plant  as  a  whole.  Thus 
we  consider  power,  for  instance,  as  a  contributory  department, 
while  the  automatic  machines  would  be  a  productive  department. 
Three  Kinds  of  Expense. — Earlier  in  this  chapter  it  was  noted 
that  the  elements  which  go  to  make  up  the  cost  of  the  product 
may  either  be  actual  cash  expense  or  merely  book  entries.  We 
thus  find  that  expense  is  of  three  general  sorts — 

(1)  The  charges  to  the  productive  manufacturing  departments 
which  arise  in  those  parts  of  the  factory  that  actually  work  upon 
the  product  of  the  plant.     These  expense  items  are,  however,  of 
such  a  character  that  they   cannot   be   charged    directly   into 
a  particular  product.     They  consist  of  such  items  as  supplies, 
non-productive  labor,   foreman's  salaries,   etc.     These   charges 
vary  roughly  with  the  activity  of  the  plant  and  are  therefore 
sometimes  referred  to  as  controllable  expense.     In  other  words, 
if  the  plant  were  shut  down  or  its  activity  greatly  curtailed,  there 
would  be  a  corresponding  falling  off  in  the  amount  of  these 
charges  unless  it  happened  to  be  the  policy  of  the  company  to 
maintain  all  or  a  skeleton  of,  its  organization  in  bad  times. 

(2)  The   charges  against  the  contributory  departments  also 
vary,  but  not  so  closely  with  the  activity  of  the  plant.     These 
charges  are  for  the  benefit  of  the  factory  as  a  whole.     Chief 
among    them    are    the    executives'    salaries,    superintendents' 
salaries,  office  expense,  heat,  light  and  power,  the  upkeep  of  the 
stockroom,  the  receiving  room,  the  shipping  room,  etc. 

(3)  The  fixed  charges,  so-called  because  they  go  on  regardless 
of  the  activity  of  the  plant  and  normally  do  not  vary  much  from 
year  to  year  unless  considerable  additions  are  made  to  the  plant 
or  the  equipment.     They  are  spread  over  the  entire  plant  and 
consist  of  such  items  as  rent,  insurance,  taxes,  depreciation,  etc. 
Obviously  some  of  these  items  will  appear  or  not,  depending  upon 
whether  the  plant  is  rented  or  owned. 

Numerically,  by  far  the  greater  number  of  the  elements  of 
cost  which  must  ultimately  get  into  the  cost  of  the  finished 
product,  are  the  actual  expenditures.  Money  is  actually  paid 
out  for  all  materials,  supplies,  labor  and  all  of  the  expense  of 
overhead  items  except  depreciation.  Depreciation  is  calculated 
from  what  is  known  as  a  fixed  charge  sheet.  The  method  of 
determining  these  charges  will  be  described  in  the  next  chapter. 


188      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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190      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

The  Charge  Register. — However,  it  is  necessary  for  us  to  have 
some  routine  by  which  we  will  be  assured  that  all  actual  disburse- 
ments will  find  their  way  into  the  costs.  For  this  purpose  we 
shall  use  the  charge  register  shown  in  Fig,  68.  This  form  is  a 
rather  modern  development  in  bookkeeping  which  greatly 
simplifies  both  the  bookkeeping  and  the  cost  accounting.  The 
form  is  ruled  to  conform  with  the  four  principal  elements  of  cost, 
namely — materials  and  supplies;  labor;  factory  expense;  and 
selling  expense.  The  exact  form  of  the  register  will,  of  course, 
depend  upon  the  nature,  extent  and  needs  of  the  business. 
Sometimes  the  executive  who  becomes  over  enthusiastic  on 
costs,  tries  to  subdivide  minutely  the  headings  of  the  charge 
register.  In  one  instance  a  man  of  this  sort  insisted  that  his 
charge  register  be  designed  to  permit  a  distribution  among  130 
accounts.  This  necessitated  a  most  unwieldly  book,  and  with 
all  the  subdivisions,  was  no  more  valuable  than  one  with  the  four 
principal  headings  given  above  and  shown  in  the  figure.  Such  a 
book  as  this  need  have  a  page  no  more  than  24  in.  wide.  The 
complex  manufacturing  business  cannot  possibly  devise  a  charge 
register  sufficiently  subdivided  to  hold  all  the  details  which  are 
needed  by  the  cost  department. 

In  fact,  we  prefer  to  consider  the  charge  register  as  a  controlling 
account  with  broad  subdivisions,  and  spaces  left  so  that  each 
item  under  these  broad  divisions  can  be  described.  In  this  way 
it  is  possible  to  analyze  the  items  so  that  they  will  get  accurately 
and  safely  to  their  ultimate  destination.  There  are  a  great 
many  machine  shops  whose  conditions  are  such  that  500  columns 
on  a  charge  register  would  not  suffice,  but  the  four  broad  classi- 
fications will  do. 

The  function  of  the  charge  register  is  thus  seen  to  be  that  of  a 
narrow  channel  through  which  all  disbursements  must  pass. 
Because  the  channel  is  narrow,  giving  a  close  view  of  each  item, 
it  is  possible  to  segregate  them  among  the  principal  controlling 
accounts  of  the  business,  which  is  all  that  is  needed  at  this  point. 
In  later  chapters  we  shall  trace  the  entries  on  the  charge  register 
which  we  have  reproduced,  through  the  various  steps  that  they 
take  en  route  to  their  final  resting  place  in  the  cost  of  the  finished 
product. 

The  items  shown  on  the  charge  register  are  by  no  means  all 
that  would  be  entered  in  the  course  of  a  month  in  even  a  small 
business.  They  are  meant  to  be  typical  only.  All  are  self 


FUNDAMENTALS  OF  COSTS 


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192      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

explanatory,  except  perhaps  that  one  on  line  24,  from  the  Sun 
Machine  Co.,  for  $157.20,  an  invoice  for  work  which  the  Sun 
Machine  Co.  did  on  the  product  to  relieve  a  congestion  in  the 
shop.  The  charge  will  become  part  of  the  direct  cost  of  the 
part  in  question.  The  item  is  therefore  charged  directly  through 
the  charge  register  to  the  goods  finished  and  in  process  account. 

At  the  end  of  the  month  the  columns  of  the  charge  register  are 
footed  and  a  summary  is  prepared  such  as  is  shown  at  the  bottom 
of  the  charge  register.  As  columns  are  maintained  for  each 
ledger  account,  with  the  exception  of  the  general  ledger  debit 
column,  no  analysis  of  the  various  columns  has  to  be  made,  with 
the  exception  of  the  general  column.  This  should  be  analyzed 
and  the  amount  debited  to  each  account  accumulated  and  shown 
separately  in  a  summary,  as  is  indicated  on  that  which  is  herewith 
attached. 

Figure  69  shows  the  various  ledger  pages  of  the  general  books 
after  the  items  on  the  charge  register  have  been  grouped  and 
posted.  This  is  the  first  point  at  which  the  cost  system  "hooks 
up  with  the  general  books." 

How  Cost  Systems  Are  Reliable. — It  has  been  our  aim,  in 
this  chapter,  merely  to  make  clear  the  fundamental  principles 
governing  cost  accounting;  the  ones  we  have  discussed  are  those 
on  which  executives  most  often  go  astray.  If  an  executive  once 
gets  a  clear  grasp  of  these  fundamentals  the  minor  intricacies 
will  present  no  difficulties. 

Cost  systems  are  seldom  inaccurate  because  of  the  routine 
and  forms  used.  The  inaccuracies  come  from  fundamental 
errors;  often  due  to  considering  the  subject  as  an  accounting 
rather  than  as  a  manufacturing  problem. 

The  devising  of  a  cost  system  presents  a  series  of  manufacturing 
problems,  each  of  which  must  be  solved  in  the  light  of  the  needs 
and  conditions  of  the  particular  business.  Designing  a  cost 
system  is  entirely  comparable  to  designing  a  bridge.  There  is 
no  standard  bridge  which  can  be  thrown  across  all  streams.  The 
nature  of  the  ground  on  which  the  foundations  will  rest  must  be 
studied  and  the  problems  presented  by  quicksand  or  rock  solved. 

The  amount  and  nature  of  the  load  to  be  carried  must  also  be 
known,  as  a  bridge  is  designed  especially  to  support  those  loads. 

In  the  same  way,  the  peculiarities  of  the  product,  of  plant 
layout  and  even  of  the  personnel  must  be  considered  in  designing 
the  best  cost  system  for  any  plant. 


CHAPTER  XVII 
FIXED  CHARGES 

We  saw  in  the  preceding  chapter  how  current  expenditures 
were  started  on  their  way  into  the  finished  product  through  the 
charge  register. 

There  are  other  charges  which  make  up  part  of  the  cost  of  the 
product  but  which  are  paid  either  in  lump  sums  or  do  not  entail 
any  cash  expenditure  whatever.  They  are  the  fixed  charges, 
so  called  because  they  do  not  fluctuate  appreciably  with  the 
activity  of  the  plant. 

Taxes  and  insurance  are  paid  usually  once  a  year,  although 
sometimes  only  once  in  2  or  3  years,  and  yet  each  unit  of  output 
must  bear  its  proper  share  of  these  expenses.  Depreciation 
on  buildings  and  equipment  is  solely  a  book  entry  and  yet  a 
part  of  it  must  be  gotten  back  in  the  selling  price  of  the  product 
in  order  that  sooner  or  later  the  existing  buildings  and  equipment 
may  be  replaced. 

All  of  these  fixed  charges  are  first  charged  to  the  various 
departments  of  the  plant  and  from  there  into  the  product  which 
passes  through  each  department.  In  a  later  chapter  we  shall 
describe  the  principles  which  underlie  the  proper  departmentaliz- 
ing of  the  plant.  It  is  simply  mentioned  here  in  passing  so  that 
it  may  be  definitely  understood  that  the  plant  is  divided  into 
departments. 

Taxes  and  insurance  admittedly  fluctuate  somewhat  from 
year  to  year,  but  sufficient  accuracy  can  be  obtained  by  carrying 
into  the  costs  a  figure  based  upon  the  amount  of  these  two  items 
for  previous  years.  A  charge  is  therefore  made  to  each  depart- 
ment on  a  monthly  basis. 

Depreciation. — Serious  errors  may  creep  into  the  final  costs  of 
the  product  through  incorrect  charging  of  depreciation.  It  is 
not  uncommon  to  find  concerns  which  split  hairs  in  an  attempt 
to  get  labor  and  material  charges  correctly  apportioned  to  the 
various  types  of  product  and  who  then  allow  their  emotions  to 
govern  the  amount  of  depreciation  charged.  The  amount  of 
depreciation  for  any  year,  in  fact,  whether  any  depreciation  shall 
13  193 


194      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

be  charged  or  not,  is  too  often  determined  by  the  statement  of 
net  profits.  In  good  years  an  excessively  heavy  depreciation 
may  be  charged;  in  poor  years,  none  at  all.  One  of  the  benign 
results  of  the  Federal  Income  Tax  has  been  that  it  forces  manu- 
facturers to  be  consistent  in  their  handling  of  depreciation. 

Conceivably,  there  are  three  methods  by  which  the  values  of 
buildings  and  equipment  might  be  figured,  the  forced  sale  value, 
the  operating  worth,  and  the  cost  of  replacement.  Many  a 
long-winded  discussion  has  taken  place  as  to  which  of  the  three 
is  proper.  Fortunately,  the  Treasury  Department  has  given  a 
ruling  which,  so  long  as  the  ruling  lasts,  takes  this  question  out 
of  the  realm  of  argument.  Buildings  and  equipment  acquired 
since  March  1,  1913,  shall  be  depreciated  on  their  cost.  Equip- 
ment and  buildings  acquired  prior  to  March  1,  1913,  shall  be 
depreciated  on  their  fair  value  as  of  that  date. 

The  Correct  Rate. — Another  question  which  has  caused  a 
great  deal  of  discussion  is  the  rate  of  depreciation  to  be  used. 
The  principal  cause  of  disagreement  has  come  from  an  attempt 
to  use  a  blanket  rate  to  cover  all  of  the  buildings  and  equipment 
of  a  plant.  A  little  clear  thought  should  show  that  this  is 
ridiculous. 

The  type  of  construction  of  the  building  largely  settles  the 
rate  at  which  it  should  be  depreciated.  To  be  exact,  this  requires 
the  opinion  of  a  capable  engineer.  A  fair  average,  however,  for 
the  type  of  buildings  ordinarily  used  by  machine  shops  is  3 J  per 
cent  per  year. 

Each  machine  should  be  studied  in  order  to  arrive  at  the 
correct  rate  of  depreciation  for  it.  Mere  length  of  life  is  not  the 
sole  test.  Possibility  of  obsolescence  must  also  be  considered. 
For  instance,  it  is  generally  true  that  a  drop  hammer  takes  a 
slightly  higher  rate  of  depreciation  than  a  drill  press.  An  auto- 
matic machine,  however,  will  have  a  much  higher  rate  than  either 
of  the  others,  not  due  so  much  to  greater  wear  and  tear  on  the 
automatic  as  to  the  fact  that  new  ideas  in  automatic  machinery 
are  being  developed  rapidly  and  there  is  much  greater  chance  of 
the  automatic  becoming  obsolete. 

Because  it  is  desirable  to  determine  the  depreciation  for  each 
individual  item,  it  is  well  to  record  all  equipment  on  some  form 
of  record.  This  may  be  either  a  book  with  a  page  for  each 
machine  and  building  or  a  card  record.  In  Fig.  70  is  shown  a 
card  form  of  equipment  register  which  has  been  found  to  be 


FIXED  CHARGES 


195 


simple  to  keep  and  effective.  The  sum  of  the  total  costs  shown 
by  all  the  cards  should  of  course  agree  with  the  total  of  the  asset 
account  on  the  general  ledger  of  the  group  to  which  it  belongs. 
For  the  shop  which  we  are  considering,  the  depreciation  on 
machinery  figures  out  to  $27,389.12;  for  jigs,  tools  and  fixtures, 
$14,129.82;  for  automobiles,  $1,815.10;  for  the  office,  $12,000. 


Total 


EQUIPMENT  REGISTER 


It.-/  6  ________ 


Head  JU//I 


BuJH  By  ___  _  _  11  __  *  ____  *' 

Size  Kg  Pulley  -J-4  *•_?•*—*?-         Oite  Pur  ••^e/es- 


-JA.% 

innual  1ml.  $_J?J?  JS.  __ 


Freight  A  Cir'l. 


.SOP  00 
.50  00 
/£  00 

.-25  00 


930  00 


Book  Mire.  J«a.  hi.  H20 
ill  Scrip  him 


FIG.  70. — Equipment  register  card. 

The  total  depreciation  on  the  buildings  at  the  rate  of  3J  per  cent 
a  year  gives  a  money  value  of  $15,833.69. 

Let  us  say  that  the  taxes,  not  including  the  Federal  Income 
Tax,  amount  to  $3,200;  the  insurance  to  $3,000,  giving  a  total 
yearly  fixed  charge,  including  depreciation,  of  $65,567.73. 

Each  month  we  must  charge  into  the  expense  of  doing  business 
one  twelfth  of  the  total  of  this  fixed  charge.  We  now  want  to 
determine  how  this  monthly  charge  of  $5,463.97  finds  its  way  into 
the  product.  This  cannot  be  done  correctly  by  spreading  it 
over  the  entire  output. 

The  Fixed  Charge  Sheet.— So  that  each  department  and, 
ultimately,  each  unit  of  output  will  carry  its  correct  share  of 
these  fixed  charges,  we  set  up  the  fixed  charge  sheet  shown  in 
Fig.  71. 

Since  the  entire  business  is  divided  into  departments,  it  is 
apparent  that  the  fixed  charges  for  buildings  and  machinery  can 
be  distributed  among  all  departments.  The  fixed  charges 


196      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


FIXED  CHARGES 


197 


dependent  upon  the  machinery  in  any  department  can  be  mea- 
sured by  the  ratio  which  the  value  of  the  machinery  in  any 
department  bears  to  the  total  value  of  machinery  in  the  plant. 
The  fixed  charges  on  the  building  itself  can  most  fairly  be  dis- 
tributed to  each  department  in  the  ratio  which  the  floor  space 
occupied  by  the  department  bears  to  the  total  floor  space  of 
the  plant. 

We  therefore  set  up  Fig.  71  in  two  parts.     At  the  left  is  a 
list  of  the  various  departments  of  the  plant.     Immediately  to 


TOTAL     CHARGE 

MONTHLY  CHARGE.  (Basis  Journal  Entry) 

Mcich.  Dept. 

44534 

04 

Mach.Dept 

37/1 

17 

E>ldcj.Dept. 

15833 

fiQ 

Bldcj.  Dept 

1319 

47 

Total  Dept. 

60367 

7? 

Mfg.  Exp. 

SOU 

64 

MachTaxes 

979 

00 

Mach.Dept 

61 

W 

Erfc^.  Taxes 

IZZI 

00 

Bldcj.Dept 

101 

75 

Total  Taxes 

ZZOO 

00 

Mfq.  Lxp. 

183 

33 

Mach.  ln& 

1350 

00 

Mach.  Dept 

112 

50 

Bldtj.  Ina 

1650 

00 

BWq  Depf. 

137 

50 

Total  Ins. 

3000 

00 

Mfi}  Dtp. 

250 

00 

TOTAL 

65567 

73 

546^ 

9/ 

FIG.  71A. 

the  right  of  this  column  is  the  calculation  for  each  item  of  fixed 
charge  which  is  a  charge  on  the  building  and  may  therefore  be 
distributed  on  the  square  foot  basis.  The  next  section  of  the 
fixed  charge  sheet  comprises  the  calculations  of  the  various 
items  of  fixed  charges  caused  by  the  equipment  and  which  is 
distributed  in  the  ratio  which  the  equipment  in  a  department 
bears  to  the  total  equipment  of  the  plant. 

Spreading  Fixed  Charges. — This  makes  it  necessary  to  deter- 
mine how  much  of  the  taxes,  insurance  and  depreciation  is 
incurred  because  of  the  buildings  and  how  much  because  of  the 
equipment.  Equipment,  we  may  say,  includes  not  only  ma- 
chinery but  jigs,  tools,  fixtures  and  furniture. 

The  plant  register  of  which  we  have  already  spoken,  shows  a 
total  valuation  of  buildings  and  equipment  of  $822,823.66,  of 
which  $452,391.67  is  the  value  of  the  buildings.  This  is  approxi- 
mately 55  per  cent  of  the  total  value.  Now,  the  total  taxes  on 
the  entire  business  were  $2,200.  Therefore,  55  per  cent  of  it, 
or  $1,221,  is  taxes  on  the  buildings,  and  $979  on  the  equipment. 
Of  the  $3,000  insurance,  we  find  in  a  similar  way  that  55  per 
cent  of  $1,650,  is  insurance  on  buildings  and  the  rest,  $1,350,  is 
insurance  on  equipment.  It  should  be  apparent  that  distribut- 


198      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

ing  these  two  items  of  the  fixed  charge  on  the  basis  of  value  is 
entirely  logical  for  both  taxes  and  insurance  depend  upon 
value. 

We  must  now  divide  the  fixed  charge  of  the  buildings  which 
we  have  just  determined  in  lump  sums  among  the  various  depart- 
ments. The  sums  we  have  arrived  at  are  therefore  entered 
at  the  foot  of  the  columns  under  building  depreciation,  building 
taxes  and  building  insurance.  These,  as  we  have  seen,  are  to  be 
divided  among  the  various  departments  in  the  ratio  which  the 
departmental  area  bears  to  the  total  area  of  the  plant.  This  is 
obviously  done  by  measuring  the  area  of  the  departments,  either 
in  the  plant  itself  or  on  a  scale  drawing  if  that  is  available.  At 
this  point,  it  is  well  to  bring  in  a  check  on  the  accuracy  of  the 
figures  and  see  that  the  sum  of  the  departmental  areas  as  meas- 
ured equals  the  total  area  of  the  plant. 

We  have  now  distributed  the  fixed  charges  on  the  buildings 
to  the  various  departments.  The  next  step  is  to  distribute  those 
charges  which  are  incurred  on  the  equipment.  We  have  seen 
that  the  logical  way  to  make  this  distribution  of  insurance  and 
taxes  is  on  the  basis  of  the  amount  of  equipment  in  each  depart- 
ment. We  therefore  add  up  all  of  the  equipment  listed  on  the 
plant  register  in  order  to  get  the  total  for  the  plant.  For  the 
shop  which  we  are  considering,  the  total  of  this  amount  is 
$370,431.99.  We  now  determine  the  exact  amount  of  equipment 
in  each  department  and  calculate  what  per  cent  of  the  total 
equipment  each  department  contains.  In  the  case  of  the  office, 
for  instance,  we  find  that  it  contains  $12,189.19  worth  of  equip- 
ment which  is  3.29  per  cent  of  the  total.  This  department  will 
therefore  bear  3.29  per  cent  of  the  total  fixed  charges  on  equip- 
ment, which  amounts  to  $32.21  for  taxes  and  $44.42  for  insurance. 

The  Equipment  Register. — The  depreciation  on  equipment  is 
calculated  from  the  equipment  register  cards.  As  the  rate  for 
departments  and  even  different  machines  in  a  department  will 
vary,  the  final  figure  for  each  department  is  the  aggregate  of  the 
individual  figures  shown  on  the  register  cards.  The  total 
equipment  depreciation  for  the  plant  is,  therefore,  the  sum  of  the 
individual  depreciation  figures,  instead  of,  as  in  the  case  of 
taxes  and  insurance,  being  a  known  total  divided  upon  a  per- 
centage basis. 

In  the  lower  right-hand  corner  of  the  fixed  charge  sheet  we 
gather  together  the  total  depreciation,  total  tabes  and  total 


FIXED  CHARGES  199 

insurance  on  a  monthly  basis  in  order  to  prove  that  we  are 
absorbing,  each  month,  into  the  departmental  expense,  the 
amounts  which  have  been  set  up  on  the  fixed  charge  sheet. 
This  also  serves  as  a  memorandum  on  which  the  cost  department 
makes  up  the  proper  journal  entries  which  they  give  each  month 
to  the  accounting  department. 

In  practice,  it  is  well  to  revise  the  fixed  charge  sheet  about 
every  six  months  so  as  to  be  able  to  make  proper  corrections  for 
equipment  which  has  been  transferred  from  department  to 
department  and  to  take  care  of  the  installation  of  new  machinery. 
This  is  made  easy  when  a  plant  equipment  record,  such  as  has 
been  mentioned,  is  used.  Care  put  on  keeping  the  plant  equip- 
ment record  up  to  date  will  be  very  well  repaid  in  arriving  at 
actual  cost  figures.  Sometimes,  of  course,  no  changes  in  equip- 
ment have  been  made,  in  which  event  it  is  unnecessary  to  revise 
the  fixed  charge  sheet. 


CHAPTER  XVIII 
DEPARTMENTALIZING  THE  OVERHEAD  EXPENSE 

"Last  year,  the  overhead  expense  of  my  shop  was  100  per  cent 
of  the  labor  and  material  cost.  How  does  that  compare  with 
other  machine  shops?  Is  it  high  or  low?" 

That  inquiry  was  made  recently  by  the  owner  of  a  machine 
shop  which  was  not  making  nearly  the  profit  it  should  make, 
considering  the  excellence  of  its  product  and  the  breadth  of  its 
market.  In  nearly  identical  form,  it  has  been  asked  a  hundred 
times  by  men  in  nearly  every  kind  of  manufacturing.  That  a 
man  looks  upon  all  of  the  expenditures  that  he  makes  for  other 
than  labor  and  material  as  a  " burden"  of  the  business  as  a 
whole,  and  allots  it  in  proportion  to  the  amount  of  labor  and 
material  each  item  of  output  contains,  shows  lack  of  thought. 
It  would  be  almost  as  accurate  to  apportion  the  overhead  on  the 
basis  of,  say,  the  color;  if  painted  red,  the  product  would  carry 
$10  of  the  overhead;  if  blue — $20;  yellow,  $50.  Nearly  every 
other  inaccurate  method  has  been  used,  apparently. 

Distributing  Overhead. — The  tendency  to  lump  overhead  and 
then  to  distribute  it  over  the  entire  output  on  some  system  or 
other,  shows  how  little  careful  thought  has  been  given  to  just 
what  overhead  is  and  what  causes  it.  The  fact  is  that  overhead 
is  complex;  it  consists  of  many  charges  for  many  purposes  mixed 
together,  as  a  rule,  into  a  lump  sum,  thanks  to  the  accounting 
methods  of  old  time  bookkeepers  who  were  interested  only  in 
lump  sum  figures  of  profit  for  the  business  as  a  whole,  at  the  end 
of  a  year. 

If  a  shop  made  but  one  thing,  a  10-in.  pulley,  say,  this  lump 
sum  of  overhead  could  be  divided  over  the  output.  Then,  if 
the  overhead  were  $100,000  a  year  and  the  output  were  100,000 
10-in.  pulleys,  all  alike,  each  pulley  would  carry  the  same  over- 
head, namely,  $1.  Also  that  would  be  the  figure  whether  we 
divided  the  overhead  by  the  totals  produced,  on  the  basis  of  a 
percentage  of  the  labor  and  material,  on  the  labor  alone,  the 
material  alone,  or  the  productive  hour  basis. 

200 


DEPARTMENTALIZING  THE  OVERHEAD  201 

But  there  are  practically  no  single  product  plants.  Even 
though  the  shop  made  nothing  but  cast-iron  pulleys,  it  would 
make  them  in  different  sizes  and  styles.  That  means  that  one 
pulley  would  take  up  more  floor  space  in  moving  through  the 
plant.  Another  would  take  longer  to  go  through  one  process 
and  a  shorter  time  to  go  through  another  process.  When  we 
consider  that  the  overhead  expense  borne  by  a  unit  of  output  is 
really  the  rent  paid  by  that  unit  to  the  business  for  the  use  of 
the  facilities  which  the  business  furnishes,  it  is  evident  that 
seldom  will  two  different  items  of  output  carry  the  same  amount 
of  overhead  expense,  any  more  than  they  would  be  likely  to  carry 
the  same  amount  of  labor  and  material  cost.  The  exact  basis 
for  allocating  overhead  expense  so  that  the  correct  proportion  will 
find  its  way  to  the  individual  items  of  production  will  be  discussed 
in  a  later  chapter.  Our  present  problem  is  to  gather  the  expense 
in  such  a  way  that  it  may  ultimately  be  accurately  charged  to 
every  unit  produced  by  the  plant. 

For  the  sake  of  effective  supervision,  it  is  common  practice 
to  divide  a  machine  shop  into  departments  so  that  each  foreman 
will  have  under  his  charge  operations  or  machines  of  a  type  with 
which  he  is  especially  familiar.  The  executive  who  gives  thought 
to  the  whys  and  wherefores  of  his  business  has  realized  that  his 
complex  manufacturing  plant  is  thus  in  reality  a  group  of  small, 
specialized  plants.  As  a  business  grows,  it  is  common  practice 
to  bring  more  and  more  of  the  manufacturing  processes  under  the 
ownership  and  control  of  the  parent  plant  and  to  rely  less  upon 
outside  manufacturers  for  the  preliminary  manufacturing  of 
raw  material.  The  most  elementary  manufacturing — and  there  is 
a  great  deal  of  that  kind  still  done —  consists  of  buying  most  of 
the  component  parts  of  an  assembly  in  their  finished  state  from 
outside  suppliers  and  simply  assembling  those  parts  in  the  plant. 

Since  each  department  in  the  complex  factory  can  be  considered 
as  an  individual  business,  it  is  logical  and,  fortunately,  accurate, 
to  develop  the  overhead  burden  for  each  department  as  though 
it  were  a  separate  business.  This  fits  in  with  the  demands  of 
accurate  cost  accounting  for  it  has  also  been  found  that  since 
the  activities  of  different  departments  are  essentially  different, 
it  is  frequently  necessary  to  distribute  the  overhead  expense  for 
the  various  departments  on  different  bases. 

The  Unit  Layout. — We  have  seen  in  a  preceding  chapter  that 
the  machine  tools  in  a  machine  shop  may  be  arranged  in  batteries 


202      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

where  all  machines  of  a  type  are  grouped  or  in  units,  where  the 
machines  performing  consecutive  operations  on  a  part  are 
arranged  in  order.  This  is  called  the  unit  layout.  From  the 
cost  accounting  point  of  view,  either  arrangement  of  departments 
is  satisfactory.  Because  the  battery  arrangement  is  that  most 
commonly  found,  we  shall  deal  with  the  cost  problems  in  such 
a  shop. 

None  of  these  batteries  or  units  could  properly  be  consolidated 
for  cost  purposes,  although  for  purposes  of  operation  they  may  be 
under  the  same  supervision.  Lathes  and  milling  machines  cannot 
as  a  rule  be  grouped  for  cost  purposes  in  the  same  department 
because,  although  the  machines  may  be  approximately  the  same 
size  and  so  take  up  equal  amounts  of  floor  space  per  machine, 
and  be  of  relatively  equal  value,  that  is,  take  about  the  same 
insurance  and  depreciation  charge,  the  tool  usage  is  widely 
different.  The  lathe  tools  are  relatively  cheap  but  the  milling 
cutters  are  so  disproportionately  valuable  that  if  both  classes  of 
machines  are  grouped  in  a  single  department,  lathe  work  going 
through  that  department  would  appear  to  be  high  in  expense 
cost  because  of  the  absorption  of  some  of  the  charge  for  milling 
cutters  that  would  be  made  to  the  department. 

Now  we  often  find  that  lathes  and  planers  use  the  same  kind 
of  tools — so  far  as  cost  goes.  Yet  these  two  machines  cannot  be 
grouped  in  one  department,  due  to  the  disproportionate  amount 
of  floor  space  occupied. 

The  typical  machine  shop  may  have  any  number  of  manu- 
facturing departments.  Each  of  them,  we  want  to  emphasize, 
is  a  separate  manufacturing  business.  Were  each  of  these  manu- 
facturing departments  in  reality  a  separate  plant,  widely  sepa- 
rated and  under  separate  management,  they  would  each  need  a 
general  superintendent,  an  office,  a  selling  staff,  a  toolroom, 
a  boiler  room  and  so  on.  One  of  the  advantages  of  being  under  a 
single  management  and  under  a  single  roof,  is  that  they  all  can 
be  served  by  one  superintendent,  one  selling  staff,  one  boiler 
room  and  so  on;  and,  by  each  of  the  manufacturing  divisions 
bearing  its  just  share  of  these  general  expenses,  the  expense  for 
each  is  reduced. 

Productive  Departments. — We  are  now  at  a  point  of  the 
discussion  where  it  becomes  evident  that  the  departments  of  a, 
machine  shop  may  be  separated  into  two  groups;  those  which 
actually  perform  manufacturing  operations  on  the  product  and 


DEPARTMENTALIZING  THE  OVERHEAD  203 

which  are  therefore  called  " productive"  departments,  and  those 
departments  which  serve  either  the  productive  departments  or 
the  business  as  a  whole  and  which  are  therefore  called  ''contribu- 
tory" departments.  For  the  typical  machine  shop  which  we  are 
discussing,  we  set  up  on  the  fixed  charge  sheet  as  " productive" 
departments  the  lathe,  milling  machine,  planer,  automatic, 
assembly,  polishing  and  hardening  departments,  and  as  contribu- 
tory departments  we  show  the  boiler  department,  the  power 
department,  the  toolroom,  the  office,  the  general  factory  and  the 
shipping  department.  The  selling  department  is  not  included 
in  the  manufacturing  cost,  but  the  methods  of  handling  selling 
expense  will  be  taken  up  later. 

While,  in  practice,  these  departments  may  often  approximate 
the  geographical  divisions  of  the  plant,  it  is  not  essential  that 
they  do  so.  It  is  important  to  keep  this  point  in  mind.  Any 
collection  of  workers  or  equipment  may  form  a  department,  with 
the  result  that  we  may  have  in  a  single  room  several  departments, 
while  another  department  may  occupy  several  rooms.  It  is 
often  good  practice  to  set  up  a  single  expensive  machine  as  a 
department.  The  real  test  of  the  unity  of  a  department  is, 
"Can  the  overhead  expense  of  this  department  safely  be  distrib- 
uted over  the  output  of  the  department  on  the  same  basis?" 
If  expensive  machines  were  in  the  same  department  with  inex- 
pensive ones,  this  could  not  be  done.  We  therefore  do  not  group 
in  a  single  department  hand  work  and  machine  work,  nor  do 
we  group  in  a  single  department  machines  which  require  expen- 
sive tools,  such  as  automatics  and  milling  machines,  with  those 
requiring  inexpensive  tools,  such  as  drill  presses;  nor  do  we,  as 
a  rule,  include  very  expensive  machines  in  the  same  department 
with  inexpensive  ones. 

An  exception  to  this  rule  is  in  the  shop  where  the  unit  line-up 
of  machines  is  used.  For,  of  course,  in  such  a  line-up,  there 
may  be  a  dozen  machines  of  different  types  ranging  from  the 
least  expensive  to  the  most  expensive.  But  we  really  consider 
such  a  group  of  different  machines  as  a  single  semi-automatic 
machine  performing  a  regular  sequence  of  operations.  There  is, 
therefore,  no  error  in  considering  such  a  line-up  as  a  department. 

Contributory  Departments. — In  determining  the  contributory 
departments,  their  divisions  are  more  or  less  arbitrary  and 
obvious,  but  the  correct  division  of  contributory  departments  is 
essential  to  accurate  machine  shop  cost  accounting.  No  matter 


204      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

how  elaborate  the  routine  of  collecting  labor  and  material  costs 
may  be,  if  this  big  item  of  overhead  expense  is  not  finally  dis- 
tributed accurately  to  the  various  units  of  output,  the  final  costs 
will  be  worse  than  useless.  Ignorance  of  costs,  like  ignorance  on 
any  subject,  is  less  dangerous  than  false  conviction.  The 
manufacturer  whose  various  lines  of  product  are  carrying  incor- 
rect amounts  of  overhead,  but  who  is  convinced  that  his  overhead 
is  spread  correctly,  is  traveling  toward  bankruptcy,  for  he  will 
be  selling  some  of  his  lines  at  a  loss  and  failing  to  sell  his  profitable 
lines  because  he  has  priced  them  too  high.  Inasmuch  as  errors 
in  spreading  the  overhead  can,  in  90  cases  in  100,  be  traced 
back  to  incorrect  departmentalization,  it  is  evident  why  so  much 
emphasis  is  placed  on  the  importance  of  getting  these  items  cor- 
rectly laid  out  in  the  first  place. 

The  point  to  consider  then,  in  laying  out  the  productive 
departments,  is  to  ignore  the  size  of  the  department  and  its 
geographical  location  and  contour.  It  may  be  an  entire  building 
or  a  single,  high  priced  machine.  The  ideal  department  will 
consist  of  machines  having  the  same  value  and  costing  the  same 
to  operate,  and  all  the  employees  in  that  department  will  receive 
identical  wages.  Of  course,  it  is  seldom  possible  to  meet  this 
ideal.  Practically,  it  is  sufficient  to  group  machines  and  employ- 
ees of  about  the  same  operating  cost  or  about  the  same  wage  scale. 

What  Can  Be  Charged  to  Production?— Admittedly,  the 
division  into  correct  productive  departments  may  sometimes  be 
intricate  and  difficult,  but  in  any  plant  it  is  entirely  possible  to 
strive  toward  the  correct  departmental  divisions.  Without 
them,  no  distribution  of  overhead  can  be  correct. 

Now,  there  are  many  items  of  expense  which  can  be  charged 
directly  into  the  productive  departments.  The  wages  of  the 
department  foreman  and  the  supplies  in  that  department  are 
examples.  We  also  charge  directly  into  the  productive  depart- 
ment its  share  of  the  fixed  charges  from  the  fixed  charge  sheet, 
which  was  described  in  Chap.  XVII.  Other  items  that  can  be 
charged  directly  to  the  productive  department  will  occur  to 
every  manufacturer.  They  are  such  as  the  time  of  set-up  men, 
non-productive  labor  such  as  inspection  labor,  belting,  cutting 
compounds,  lubricating  oil,  waste  and  so  on.  Labor  and  mate- 
rials for  repairing  machines  is  such  a  direct  charge;  but  the 
expense  of  the  maintenance  department,  whether  there  is  a 
separate  maintenance  department  or  whether  this  work  is  done 


DEPARTMENTALIZING  THE  OVERHEAD  205 

by  the  toolroom,  is  distributed  at  the  month's  end,  in  proportion 
to  the  amount  of  labor  and  material  so  absorbed.  The  time  of 
crane  men  is  often  charged  in  the  same  way,  with  the  expense  of 
the  crane  following  it.  This  is  especially  true  of  shops  doing  a 
mixture  of  light  and  heavy  work. 

The  cost  of  making  special  and  general  tools  is  handled  the 
same  way.  Spoilage  is  charged  directly  to  the  productive 
department  where  the  spoilage  occurred. 

How  Expenses  Are  Shared. — But,  as  we  have  seen,  there  are 
certain  departments  which  contribute  to  the  welfare  of  the 
business  as  a  whole  and  thus  to  the  welfare  of  the  individual 
productive  department.  Since  the  productive  departments 
benefit  by  the  expense  of  the  contributory  departments,  we  must 
make  them  bear  a  share  of  their  expense,  in  fact,  among  all  of 
the  productive  departments,  they  must  absorb  all  of  the  expense 
of  all  of  the  contributory  departments.  It  is  easy  to  see  how  the 
total  expense  of  the  power  department  can  be  distributed  among 
the  productive  departments.  This  is  done  in  much  the  same 
way  that  the  fixed  charges  are  divided.  We  know  what  the  total 
consumption  of  power  is,  and  by  simple  tests,  we  can  determine 
the  normal  consumption  of  power  by  each  department.  The 
total  power  expense  will  thus  be  divided  among  the  productive 
departments  on  the  basis  of  their  normal  consumption  of  power. 
The  cost  of  heating  will  be  absorbed  in  the  same  way.  Occa- 
sionally, we  find  a  plant  equipped  with  consumption  measuring 
devices.  The  task  of  distributing  the  heating  and  power  costs 
is  then  much  simplified.  The  expense  of  operating  the  boilers 
is  distributed  between  the  power  and  heating  on  the  basis  of  the 
steam  consumption  for  each  purpose.  Where  exhaust  steam 
is  used  for  heating,  it  is  common  practice  to  charge  10  per  cent  of 
the  boiler  expense  to  heating.  The  heating  may  be  distributed 
on  a  square  foot  basis  or  on  the  radiation  used  in  each  department. 

General  Factory  Expense. — It  is  simple  enough  to  gather  the 
expense  of  the  office  department  which  obviously  facilitates  the 
work  not  only  of  the  general  factory,  but  of  the  selling  depart- 
ment. For  the  individual  business,  an  analysis  of  the  office's 
activity  will  show  about  what  percentage  should  be  charged  to 
the  selling  department  and  what  per  cent  to  the  general  factory. 
This  division  once  set  up,  will  govern  unless  a  radical  change  in 
the  activities  comes  about,  warranting  at  new  basis  for  dividing 
office  expense. 


206      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

This  brings  us  to  consideration  of  the  contributory  department 
which  we  set  up  as  " general  factory."  This  department  facili- 
tates the  operation  of  the  manufacturing  departments  of  the 
business,  but  only  such  charges  are  put  into  general  factory  as 
cannot  be  directly  charged  to  a  productive  department.  For 
example,  we  may  be  paying  a  general  superintendent  $6,000  a 
year.  One  month  he  might  give  nearly  all  of  his  attention  to 
the  affairs  of  the  automatic  department.  Normally,  however, 
his  attention  is  spread  impartially  over  the  entire  plant.  Among 
other  items  of  expense  which  are  properly  chargeable  to  the 
general  factory  department  in  the  typical  machine  shop,  are  a 
share  of  the  executive  salaries,  the  superintendent's  assistant, 
cost  and  planning  clerks,  janitors,  general  or  inter-department 
truckers,  watchmen  and  so  on.  Yard  men  usually  turn  in  time 
cards  which  apply  part  of  their  time  direct  to  certain  functions. 
Thus,  unloading  coal  would  be  charged  to  the  boiler  department, 
loading  cards  to  selling  expense,  or  maybe  to  a  specific  sales  order. 
When  all  of  these  expenses  have  been  grouped  and  totaled, 
they  must  be  distributed  to  the  manufacturing  departments  on 
some  fair  basis.  It  is  in  this  distribution  that  much  specious 
reasoning  is  done  with  very  sad  results  in  the  accuracy  of  costs. 

Methods  That  Are  Incorrect. — Let  us  consider  briefly,  some 
of  the  incorrect  methods  in  order  to  emphasize  some  of  the 
fallacies.  It  would  be  entirely  possible,  for  instance,  to  spread 
this  general  factory  expense  among  the  productive  departments 
in  the  same  way  that  the  depreciation  of  plant  was  distributed, 
that  is,  on  a  square-foot  basis.  We  have  seen  this  done.  But 
we  must  remember  that  general  factory  is  largely  a  supervisory 
expense.  What  connection  could  there  possibly  be  between  the 
floor  area  of  a  department  and  the  effort  of  supervising  it?  One 
department,  for  instance,  might  contain  several  thousand  square 
feet  and  yet  be  much  more  easily  supervised  than  a  department 
less  than  500  square  feet  in  area.  This  leads  us  to  see  that 
supervisory  expense  is  really  dependent  upon  the  number  of 
human  beings  or  machines  in  a  department,  but  as  some  produc- 
tive departments  will  have  many  machines  and  few  workmen, 
while  others  will  have  many  workmen  and  few  machines,  we 
obviously  come  up  against  a  difficulty  if  we  try  to  divide  the 
expense  on  the  basis  of  the  number  of  machines  or  number  of 
men  in  a  department. 

Our  next  thought  might  be  that  we  can  make  a  department 


DEPARTMENTALIZING  THE  OVERHEAD  207 

with  a  large  payroll  bear  a  proportionately  larger  share  of  general 
factory  than  the  department  with  a  small  payroll.  But  we  run 
up  against  several  obstacles  here;  the  one  just  mentioned  and 
another  which  arises  from  the  fact  that  we  may  have  low  paid 
unskilled  labor  in  one  department,  and  highly  paid,  highly 
skilled  labor  in  another.  The  highly  skilled  labor  usually  requires 
less  supervisory  expense  than  the  unskilled,  so  apparently  we 
cannot  use  this  system  of  distribution. 

The  method  in  almost  universal  use — although  not  100  per 
cent  correct — is  to  divide  the  general  factory  expense  among 
the  productive  departments  on  the  basis  of  the  productive  hours 
of  each  department.  We,  therefore,  from  the  payroll,  determine 
the  total  productive  hours  for  the  plant  and  for  each  of  the  pro- 
ductive departments  in  the  plant,  and  divide  the  general  factory 
expense  among  the  departments  in  the  same  ratio  that  the  depart- 
ments' productive  hours  bear  to  the  total  productive  hours  of 
the  plant.  This  method  is  not  entirely  correct  but  is  in  accord 
with  the  best  common  practice  and  has  been  the  accepted  theory. 
For  the  usual  run  of  machine  shops,  it  probably  is  practically 
correct,  but  for  the  shop  which  has  a  disproportionately  large 
amount  of  hand  work  or  automatic  machine  work,  special 
division  and  distribution  of  the  general  factory  expense  should  be 
resorted  to.  As  this  comes  under  the  case  of  special  conditions 
it  cannot  well  be  treated  in  this  chapter. 

The  Objective  of  Cost  Accounting. — The  journal  entry  for  the 
fixed  charges  was  noted  on  the  bottom  of  the  fixed  charge  sheet, 
Fig.  71.  In  the  next  chapter  we  will  show  the  ledger  accounts 
as  they  stand  after  this  entry  and  those  necessitated  by  the 
labor  charges  have  been  made. 

On  the  expense  analysis  we  are  showing  against  each  depart- 
ment the  monthly  charge  made  against  it  for  fixed  charge,  that 
is  for  tax,  insurance  and  depreciation.  This  figure  shows  in  the 
extreme  right-hand  column  of  the  fixed  charge  sheet,  Fig.  71. 
As  the  different  items  of  expense  develop,  we  shall  show  the 
building  up  of  the  expense  analysis.  After  we  have  accumulated 
all  of  the  various  items  and  charges  against  each  department, 
we  will  then  show  how  the  expense  of  the  contributory  depart- 
ments is  carried  forward  and  absorbed  by  the  productive  depart- 
ments. We  will  also  take  up  at  the  completion  of  the  posting 
of  our  expense  analysis  the  method  by  which  the  expense  of 
each  department  is  relieved  and  how  it  finds  its  way  finally  into 


208      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

the  cost  of  the  finished  article  that  has  been  fabricated  in  a 
given  department. 

That — to  get  every  item  of  overhead  expense  into  the  finished 
product  in  the  right  proportion — is  the  ultimate  end  of  cost 
accounting.  It  is  most  accurately  and  quickly  done  by  means 
of  the  expense  analysis. 


CHAPTER  XIX 
ANALYZING  THE  LABOR  COSTS 

The  man  who  watches  his  payments  to  labor  only  to  the  extent 
of  noting  the  week  to  week  fluctuations  of  the  total  payroll 
knows  too  little  about  an  important  part  of  his  business.  Even 
getting  figures  by  departments  does  not  help  much.  Although 
many  people  say  that  it  is  the  overhead  expense  that  makes  or 
breaks  a  business,  we  believe  that  the  efficiency  of  labor  is  the 
biggest  single  thing  a  manufacturer  can  watch.  The  proper 
analysis  of  payroll  figures  is  most  often  the  guide  to  making 
betterments  in  production.  The  payroll  can,  with  ease,  be  made 
to  talk. 

But  the  routine  by  which  the  labor  cost  is  analyzed  and  con- 
trolled must  be  carefully  chosen,  otherwise  a  tremendous  clerical 
expense  may  be  set  up  which  may  or  may  not  give  reports  that 
are  informative. 

Classifying  Labor. — The  labor  performed  in  any  shop  can  be 
broadly  classified  as  productive  or  non-productive.  Productive 
labor  is  charged  directly  to  the  product.  Non-productive  labor 
is  not  done  directly  on  a  product  but  is  in  the  nature  of  a  service 
which  expedites  the  work  of  the  productive  employees.  It 
goes  first  into  the  departmental  overhead  and  later  is  applied 
with  the  other  items  of  overhead  to  the  product. 

We  saw,  in  Chap.  XVI,  a  payroll  check  for  $15,922.59  entered 
on  the  charge  register,  Fig.  68,  in  the  payroll  column.  It  later 
became  a  credit  to  accounts  payable  and  a  debit  to  the  payroll 
account  on  Fig.  69.  This  is,  of  course,  only  the  check  for  one 
pay.  Needless  to  say,  there  would  be  entries  for  three  or  four 
other  payroll  checks  during  the  month,  but  each  of  them  would  be 
handled  in  the  same  way.  The  total  of  the  payroll  column  is 
posted  to  the  ledger  as  a  debit  to  the  payroll  account. 

Distributing  Labor  Costs. — The  amount  shown  in  the  ledger 

account  must  of  course  be  distributed  to  the  various  accounts 

that  have  been  affected.     Thus,  the  money  paid  for  labor  may 

have  been  spent  for  work  upon  the  product — that  is  productive 

H  209 


210      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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211 


212      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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ANALYZING  LABOR  COSTS 


213 


or  chargeable  labor;  or  it  may  have  been  spent  in  wages  for 
foremen,  truckers,  sweepers,  mill-wrights,  shipping  room  men 
and  other  so-called  non-productive  or  non-chargeable  labor. 
Again,  some  of  this  money  may  have  been  disbursed  for  the 
maintenance  of  the  plant,  for  labor  or  new  tools,  new  machinery, 
or  new  buildings.  That  is,  it  may  have  been  paid  to  labor  which 


FIG.  75. — Home-made  time-clock  dial. 

has  increased  the  value  of  the  investment  and  can  be  capitalized ; 
which  might  be  known  as  asset  labor.  That  is  why,  if  costs  are 
to  be  correct,  we  must  see  to  it  that  the  labor  cost  gets  into  the 
various  accounts  which  have  been  affected.  The  starting  point 
for  all  labor  costs  is  the  service  card  whose  function  in  planning 
was  mentioned  in  Chap.  VII.  Two  kinds  of  service  cards  are 
used :  one  for  productive  labor  and  one  for  non-productive  labor. 
Both  kinds  are  shown  in  the  group  in  Fig.  74.  All  service  cards 
are  made  out  in  triplicate,  one  copy  to  be  used  by  the  time 
keeper,  one  for  the  workman  and  the  other  going  to  the  cost 
department.  The  time  is  shown  on  the  service  card  in  one 
tenth  of  an  hour  intervals,  either  automatically  with  an  electrical 


214      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

or  mechanically  operated  clock,  or  by  the  time  keeper  himself 
who  reads  the  time  from  a  clock  with  a  blueprinted  dial.  The 
mechanical  or  electrical  clock  is  of  course  preferable,  as  it 
practically  eliminates  the  chance  of  error.  In  small  plants,  how- 
ever, where  the  expense  of  such  an  installation  does  not  seem  advis- 
able, an  ordinary  alarm  clock  with  a  special  face  such  as  is  shown 
in  Fig.  75  is  satisfactory.  This  can  be  home-made.  Note  that  in 
the  figure  shown,  the  shop  is  on  a  10-hour  day  with  a  half -hour 
lunch  period,  which  is  automatically  eliminated. 

The  Time  Clock. — In  an  earlier  chapter,  we  described  how  the 
service  cards  are  originally  made  out.  If  a  man  works  all  day 
on  a  single  job,  but  one  service  card  is  turned  in  by  him  for  the 
day.  If  his  work  changes,  a  separate  card  is  made  out  for 
each  job  so  that  the  charge  for  his  time  may  be  put  where  it 
belongs.  When  all  tickets  for  all  men  in  the  plant,  both  pro- 
ductive and  non-productive,  have  been  made  out  and  checked 
to  see  that  none  are  missing,  they  are  sent  to  the  time  keeping 
department  and  are  arranged  chronologically  by  departments. 

While  a  complete  set  of  service  cards  for  a  man  presumably 
shows  his  total  time  it  would  be  easy  for  him  to  "beat"  the  com- 
pany if  service  cards  gave  the  only  record  of  his  activities.  We, 
therefore,  believe  in  safeguarding  the  payroll  by  furnishing  a 
check  in  the  form  of  "in  and  out"  clocks  at  the  shop  entrance, 
on  which  the  workman  registers  his  time  of  arrival  and  departure 
at  the  plant.  It  is  also  well  to  have  the  men  ring  in  and  out  at 
noon,  as  it  prevents  stretching  the  noon  hour  at  the  company's 
expense. 

In  a  large  shop  where  the  clerical  effort  of  checking  the  in  and 
out  time  from  the  previous  day  is  so  great  that  the  cards  cannot  be 
in  the  rack  again  when  next  they  are  needed,  it  has  been  found 
advisable  to  use  two  sets  of  cards — a  set  for  Monday,  Wednesday 
and  Friday  and  another  set  for  Tuesday,  Thursday  and  Saturday. 

Payroll  Collection  Notes. — In  any  event,  the  first  step  is  to 
enter  on  the  payroll  the  elapsed  time  as  shown  by  the  clock  card, 
and  here,  naturally,  we  come  to  the  discussion  of  the  type  of 
payroll  which  can  be  used  to  the  best  advantage.  Figure  76  shows 
a  group  of  payroll  collection  notes,  designed  to  cover  a  week. 
If  the  men  are  paid  twice  a  month,  the  payroll  collection  note 
is  easily  made  to  fit.  One  of  these  forms  is  made  out  for  each 
workman. 

To  show  how  we  analyze  the  payroll,  we  shall  consider  the 


ANALYZING  LABOR  COSTS 


215 


activities  of  two  men:  one  who  works  in  the  boiler  department  and 
one  in  the  lathe  department.  This  gives  us  instances  of  a  man 
who  does  all  non-productive  work,  and  one  whose  time  is  divided 
between  productive  and  non-productive  effort. 


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Thus,  for  man  No.  172,  a  fireman,  we  find,  Fig.  74a,  but  one 
service  card  for  a  day's  work.  It  is  a  non-productive  service 
card  and  calls  for  10  hours.  In  the  column  headed  "non-pro- 
ductive hours"  on  this  man's  payroll  collection  note,  Fig.  76a, 
we  enter  10  hours  and  under  "  distribution  "  in  the  non-productive 
column  we  put  "10."  In  the  column  at  the  left  of  the  payroll 
collection  note,  headed  "total  hours,"  we  enter  10  hours.  We 
do  not  extend  this  service  card  at  the  50  c.  rate  per  hour  for  each 
day.  When,  at  the  end  of  the  payroll  period,  the  record  for  the 


216      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

period  in  terms  of  hours  is  accumulated  on  the  payroll  collection 
note,  we  will  make  a  single  extension  to  get  the  money  value, 
thus  saving  many  small  calculations. 

Labor  Transfers. — For  the  man  who  does  productive  work, 
and  who,  because  he  is  a  good  mechanic,  may  be  shifted  from  job 
to  job,  the  time-keeping  appears  more  complex,  although  the 
payroll  collection  note  makes  the  accounting  actually  quite 
simple.  To  exemplify  the  method,  let  us  examine  the  payroll 
collection  note  of  John  Olson,  man  No.  967,  which  is  shown  in 
Fig.  76b,  and  his  service  card  for  Jan.  1,  shown  in  Figs.  74b,  c, 
and  d.  Just  as  for  the  non-productive  workman,  we  fill  in  the 
column  headed  " clock  hours"  from  the  in  and  out  clock  card. 
This  is  the  control  figure  with  which  the  sum  of  the  various 
tickets  turned  in  by  the  man  for  the  day  should  agree.  On  Jan. 
1  there  are  three  service  cards  for  man  967;  two  of  them  produc- 
tive and  one  non-productive,  shown  as  Figs.  74b,  c  and  d  respec- 
tively. Fig.  74b  shows  a  productive  service  card  for  6  hours 
on  day  work  which  is  entered  on  the  payroll  collection  note  in 
the  fourth  column.  Fig.  74c  is  a  productive  card  reporting  2 
hours  on  piece  work  during  which  the  man's  piece  work  earning 
was  $1.20.  This  data  is  entered  in  columns  5  and  6  of  the  payroll 
collection  note.  The  non-productive  service  card,  Fig.  74d 
shows  2  hours,  which  is  entered  in  column  9. 

Now  we  have  a  total  of  10  hours,  which  checks  with  the  total 
taken  from  the  clock  card.  But  we  want  to  get  this  labor  cor- 
rectly into  the  costs,  so  we  detail  it  in  the  columns  on  the  right 
of  the  payroll  collection  note  under  "  distribution." 

The  information  given  comes,  of  course,  from  the  service  card. 

Thus  we  head  a  column  "P.  L.  Dept.  F."  which  means  pro- 
ductive labor  performed  in  Department  F,  the  lathe  department, 
on  day  work.  Six  hours  are  entered  there.  The  next  two 
columns  headed  "P.  L.  P.  W.  Dept.  F."  are  for  recording  the 
time  and  earnings  at  productive  labor  on  piece  work  in  Dept. 
F.  A  fourth  column  headed  "  Machine  Repair  Dept.  F."  is 
made  to  accommodate  the  2  hours  reported  on  non-productive 
service  card  74d  which  shows  man  No.  967  busy  "Adjusting  lead 
screw  on  machine  196."  This  closes  out  his  day. 

How  Overtime  Is  Handled. — Jan.  2  shows  how  overtime  and  a 
transfer  of  the  man  from  his  regular  department  to  another 
productive  department  are  handled.  The  clock  card  for  Jan.  2 
showed  that  the  man  had  been  in  the  shop  12  elapsed  hours.  As 


ANALYZING  LABOR  COSTS 


217 


this  shop  pays  time  and  a  half  for  overtime,  the  man  is  entitled 
to  1  bonus  hour  which  is  entered  in  the  column  headed  "O.  T. 
Hours"  which  gives  the  man,  then,  a  total  of  13  hours. 


PIECE  PRICE  ALLOWANCE 


D«pt.  L«U.r  Part  No. 


ACC.  109-A 


ACC.109-B 


/' 


ACC.109-C 


£4. 


FIG.  77. — Piece  price  allowance  form. 

The  12  productive  piece  work  hours  are  entered  as  the  2 
similar  hours  were  on  Jan.  1.  However,  these  12  hours  were 
not  spent  in  Dept.  F,  so  we  make  note  of  that  fact  on  the  distri- 


PIECE   PRICE   DEDUCTION 


Man'* 
Numb.r 


Dopt.  L^t« 


Qmtar   No. 


Oper.  No. 


Nam*      /)  ' 


Unit  P, 

PrU* 


,  0  1 


Jkmarka. 

Approved, 


Si*n.d, 


FIG.  78. — Piece  price  deduction  form. 

bution  side  of  the  payroll  collection  note  by  heading  two  columns 
"Piece  Work  Dept.  A."  and  in  the  column  marked  " Hours" 
entering  12  and  in  the  column  marked  "  Amount,"  $7.10.  The 
1  hour  overtime  is  entered  in  the  column  marked  " Overtime  A" 
so  that  the  department  which  should  be  charged  with  the  over- 
time can  be  easily  determined. 


218      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Accounting  for  Piece  Work. — The  entries  for  Jan.  3,  except 
for  the  entry  in  the  piece-work  guarantee  column,  present  no 
features  different  from  the  other  2  days.  The  piece  work  guar- 
antee column  is  provided  to  handle  the  situation  when,  for  some 
reason  beyond  the  control  of  the  workman,  he  fails  to  make  his 
piece  work  rate.  For  instance,  he  might,  through  lack  of  pro- 
duction planning,  be  kept  at  his  machine  waiting  for  parts  to 
come  to  him.  In  the  specific  instance  shown  on  this  payroll 
collection  note,  we  see  by  a  glance  at  the  piece  price  allowance 
card,  Fig.  77,  that  the  parts  had  not  been  annealed  before  the 
turning  operation,  and,  because  the  mental  was  too  hard,  he 
could  not  make  his  standard  time. 

On  the  5th  of  the  month,  you  will  notice  that  there  is  a  piece 
work  deduction  of  6  cents.  There  are  many  ways  in  which  a 
man  might  be  credited  with  pieces  which  he  was  found  afterward 
not  to  be  entitled  to.  The  piece  price  deduction  form,  Fig.  78, 
shows  that  in  this  case  he  had  turned  in  five  defective  pieces,  which 
the  inspectors  sent  back  for  repairs.  The  way  this  deduction 
of  6  cents  is  handled  is  shown  on  the  payroll  collection  note. 

When  the  payroll  collection  note  is  complete  for  the  period,  it 
is  totaled  to  determine  the  amount  of  money  due  the  man.  Just 
as  is  shown  on  the  example,  the  various  columns  are  footed  and 
the  overtime  hours,  the  productive  hours  and  the  non-productive 
hours  are  extended  by  the  man's  hourly  rate.  The  piece  work 
earnings  are  corrected  with  the  piece  work  guarantees  and  deduc- 
tions and  the  net  total  made  by  the  man  on  piece  work  determined. 
The  total  pay  is,  of  course,  the  sum  of  all  his  earnings.  We  can 
prove  the  figure,  in  this  case,  $29.55,  by  checking  it  with  the 
total  of  the  distribution. 

Paying  the  Men. — How  the  actual  paying  of  the  men  is  done 
is  purely  a  payroll  matter,  not  a  factor  in  cost  accounting. 
Therefore  we  shall  not  discuss  it  in  detail.  The  individual 
however  will  have  to  decide  for  himself  whether  to  pay  by  cash 
or  check;  whether  to  fill  the  envelopes  by  hand  or  by  machine; 
and  whether  to  require  a  receipt  from  the  man.  Usually  a 
formal  payroll  form  is  not  needed,  as  the  payroll  collection  note 
gives  all  the  record  needed  for  actual  paying,  for  cost  purposes, 
and  for  reporting  the  men's  earnings  to  the  Government  for 
tax  purposes. 

We  do  however,  suggest  that  the  payroll  collection  note  be 
furnished  with  a  slip  sheet  which  can  be  folded  under  and  take 


ANALYZING  LABOR  COSTS 


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220       PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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222      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

a  carbon  record  of  the  totals  on  the  left-hand  side  of  the  sheet. 
This  is  to  be  given  to  the  man  a  day  or  two  before  he  is  paid  to 
let  him  know  what  his  earnings  have  been.  Men  appreciate 
this  and  the  extra  effort  is  small. 

Expense  Labor  Charges. — To  go  back  to  the  strictly  cost 
accounting  phase  of  the  labor  charges :  We  must  next  gather  from 
the  payroll  collection  note  the  charges  against  each  department 
under  each  class  of  labor  which  we  have  set  up.  This  we  do  by 
adding  up  the  total  amount  of  the  pay  for  each  department 
shown  on  all  of  the  collection  notes.  The  distribution  side  of  the 
payroll  is  then  analyzed  to  the  different  divisions  which  we 
have  made,  adding  these  divisions  and  seeing  that  they  check 
with  the  total.  When  each  department  has  been  handled  in 
this  manner,  the  totals  of  the  distributions  are  added  and  the 
totals  of  the  departments  are  added  and  the  two  are  reconciled 
until  a  balance  is  found  between  them. 

We  then  prepare  a  labor  distribution  sheet,  Fig.  79,  similar 
to  the  analysis  of  the  expense  from  the  voucher  register  Fig.  73, 
which  we  made  prior  to  posting  it  to  the  expense  analysis  Fig.  72. 

This  final  report  from  which  we  post  to  the  expense  analysis 
is  prepared  but  once  a  month  and  should  agree  with  the  total 
amount  of  the  payroll  account  on  the  ledger. 

There  are  of  course  two  main  divisions  of  this  distribution, 
one  for  productive  labor  and  the  other  non-productive.  For  the 
present,  all  that  we  are  dealing  with  is  the  non-productive  or  in 
other  words,  expense  labor.  In  the  lower  right-hand  corner  are  the 
journal  entries  needed  to  get  these  charges  into  the  general  books. 

In  Fig.  80  are  shown  the  expense  analyses  for  the  typical 
departments  we  are  considering  with  the  expense  labor  posted 
to  them.  The  productive  labor  we  are  leaving  for  a  moment 
until  we  come  to  the  time  when  we  are  ready  to  pick  it  up  and 
get  it  into  the  final  costs. 

Figure  81  shows  the  standing  of  the  ledger  accounts  after  the 
proper  entries  have  been  made  to  take  care  of  the  fixed  charges 
and  labor.  As  we  develop  in  future  chapters,  other  charges,  the 
proper  entries  will  be  made  both  to  the  expense  analyses  and  the 
ledger  accounts.  Thus  simultaneously,  we  still  develop  the  three 
essentials  of  a  good  cost  system:  (1)  the  cost  of  the  product;  (2) 
an  analysis  of  expense  which  enables  the  executive  to  control 
his  business;  and  (3)  a  tie-in  to  the  general  books  which  proves 
that  the  costs  developed  are  correct. 


CHAPTER  XX 
ACCOUNTING  FOR  SUPPLIES 

The  only  element  of  overhead  expense  which  remains  for  us  to 
treat  is  the  non-productive  material  or  supplies.  As  stated  in  a 
former  chapter,  non-productive  materials  are  those  which  con- 
tribute to  the  manufacture  of  the  product,  but  which  cannot  be 
allocated  as  a  direct  charge  to  a  given  unit  of  the  product  because 
they  are  not  directly  apparent  in  the  finished  goods. 

Admittedly,  materials  which  do  appear  in  the  finished  product 
are  sometimes  treated  as  supplies  because  the  cost  accountant 
is  not  sufficiently  analytical  to  devise  an  accurate  method  of 
measuring  the  amount  that  goes  into  each  item  of  product. 
Occasionally,  however,  it  is  most  practical  to  charge  such  items 
into  overhead  expense  and  so  avoid  the  clerical  effort  which  would 
be  required  to  allocate  them  properly  to  their  final  resting  place 
as  productive  material.  If  the  error  be  not  great,  the  clerical 
expense  caused  by  insistence  upon  exact  figures  may  easily  be 
out  of  proportion  to  the  benefit  which  is  achieved.  However, 
the  capable  cost  man  will  continually  strive  to  get  as  much  as 
possible  of  the  non-productive  labor  and  of  the  non-productive 
material  charged  to  the  product  as  direct  items. 

At  first  glance  it  seems  that  material,  whether  productive  or 
non-productive,  is  easy  to  account  for.  As  a  matter  of  fact  it 
is,  provided  that,  first,  accuracy  of  reporting  the  use  of  materials 
is  observed,  and  second,  that  they  are  charged  into  the  costs  at 
a  correct  price.  In  the  third  chapter  on  "the  need  for  systematic 
stock-keeping/7  we  discussed  the  physical  arrangement  of 
stockrooms  and  the  system  of  issuing  stock.  In  that  chapter, 
we  were  considering  it  principally  from  the  standpoint  of  produc- 
tion planning,  but  the  method  outlined  had  also  in  mind  the  need 
for  accounting  for  stock  from  a  cost  point  of  view. 

Should  all  Stock  be  Requisitioned? — Some  executives  allow 
the  slackest  of  store  keeping  methods  because  they,  rightly 
enough,  have  a  horror  of  the  kind  of  red  tape  that  some  account- 
ants recommend.  To  some  accountants,  absolute  accuracy  is  a 
religion.  They  set  up  as  a  goal  the  records  rather  than  the 

223 


224      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

commercial  use  of  the  cost  system.  Therefore,  when  we  say 
later  on  in  this  chapter  that  materials  are  to  be  issued  on  requisi- 
tion we  assume  that  good  judgment  will  be  used. 

Some  supplies  are  so  inexpensive  that  extensive  routine  in 
issuing  and  accounting  for  them  is  not  worth  while.  In  machine 
shops  we  consider  it  a  silly  procedure  to  expect  machinists  to 
requisition  a  handful  of  waste;  and  yet  this  has  been  done.  The 
sane  thing  is  for  the  foreman  to  requisition  several  days  supply 
for  his  department  and  place  it  where  workmen  can  help  them- 
selves. If  it  is  wasted  the  departmental  analysis  of  expense  will 
soon  enough  show  up  the  increased  usage  and  steps  can  be  taken 
to  bring  the  conditions  back  to  normal.  The  stock  kept  in  the 
plant  is  often  called  "'current"  stock  and  that  in  the  stockroom, 
the  "reverse"  stock. 

Rivets  are  another  common  material  which  it  is  better  to  issue 
to  the  shop  in  keg  lots  rather  than  to  demand  a  requisition  for 
10  or  15  at  a  time. 

Large  castings  and  items  like  plate  steel  can  be  charged  into 
the  product  from  the  specification  sheets.  Actually,  of  course, 
such  items  are  seldom  kept  in  a  stock  room  under  lock  and  key 
but  are  stored  in  some  space  handy  to  the  department  where 
they  will  be  processed.  When  an  engine  or  boiler  is  finished  it  is 
apparent  that  a  certain  quantity  of  these  heavy  materials  must 
have  been  used.  Every  month  or  so  a  physical  inventory  of 
those  classes  of  stock  may  be  taken  as  a  check  on  the  usage. 

Stores  Inventory  Card. — The  first  record  needed  in  the  routine 
of  gathering  the  cost  of  supplies  is  the  stores  inventory  card, 
Fig.  82,  which  is  kept  in  the  cost  department.  This  differs 
from  the  record  kept  by  the  production  department,  in  that  it 
maintains  a  record  not  only  of  the  quantity  of  the  supply  on 
hand,  but  also  gives  the  price  paid  for  it.  The  entries  in  the  first 
division,  headed  "Orders"  are  actuated  by  the  copy  of  the 
purchase  order  which  is  sent  by  the  purchasing  department 
to  the  cost  department.  The  source  of  entry  for  the  division 
headed  "Receipts"  is  the  receiving  slip  and  invoice.  It  is  of 
course  necessary  that  the  receiving  slips  and  invoices  first  be 
reconciled  to  agree  as  to  quantity  before  the  entry  on  the  inven- 
tory card  is  made.  Under  the  division  headed  "Withdrawals," 
a  record  is  kept  of  the  supply  requisitions  which  have  been  filled. 
"Balance"  is  self-explanatory. 

It  is  apparent  that  the  inventory  records  which  are  maintained 


ACCOUNTING  FOR  SUPPLIES 


225 


O 
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226      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


by  the  cost  department  merely  give  the  detail  of  the  controlling 
ledger  accounts.  Each  individual  stores  inventory  card  bears 
the  same  relation  to  its  ledger  account  that  the  individual  account 
of  any  debtor  to  the  company  bears  to  the  accounts  receivable 
account  in  the  general  ledger.  In  other  words,  the  various 
inventory  accounts  of  the  main  ledger  are  the  controlling  accounts 
of  the  cost  department's  detailed  inventory. 


E 

EXPENSE 

REQUISITION 

COST  COPY 

DATE 

ORDER   NO. 

EXPENSE  DESIGNATION 

CHARGE  Acer.  No. 

CHARGE  DEPT. 

QUAN. 

DESCRIPTION 

PRICE 

AMOUNT 

DELIVER  TO  DEPT. 
!       SIGNED   BY 

1 

FIG.  84. — Expense  requisition. 

While  it  is  not  our  purpose  in  this  chapter  to  discuss  the 
accounting  for  the  direct  or  productive  material,  it  may  be  well 
to  note  that  Fig.  82  is  suitable  for  that  purpose.  Fig.  83  is  a 
variation  which  is  used  in  keeping  a  record  of  finished  parts. 
While  it  will  not  be  discussed  until  later,  it  seems  well  to  show 
this  form  at  this  time,  inasmuch  as  its  purpose  is  much  the  same 
as  that  of  Fig.  82. 

Using  the  Requisition  Form. — The  requisition  not  only  gives 
authority  to  the  stock  man  to  make  the  issue,  but  it  also  serves 
as  a  record  which  will  show  for  what  purpose  the  supplies  or 
materials  were  used.  The  requisition  is  comparable  to  a  bank 
check,  made  payable  in  materials  rather  than  in  money.  It 
shows,  as  does  the  check,  the  authorization  for  the  payment  and 
to  what  department  the  payment  is  made,  and  like  the  modern 
voucher  check,  it  also  shows  for  what  purpose  it  is  made. 

The  expense  requisition  form  is  shown  as  Fig.  84.  In  order 
that  it  may  readily  be  distinguished  from  the  requisition  for 
productive  materials  it  is  well  to  have  in  the  upper  left-hand 
corner  a  large  letter  E,  standing  for  " expense."  A  glance  at 


ACCOUNTING  FOR  SUPPLIES  227 

the  requisition  will  show  that  it  has  space  for  filling  in  the  order 
number  and  the  expense  designation — by  which  is  meant  the 
class  of  expense,  such  as  repairs  to  material,  repairs  to  equipment, 
repairs  to  tools,  material  supplies  and  so  on.  In  the  space 
headed  "  charge  account  number,"  the  correct  ledger  account  is 
entered.  This  is  necessary  because  sometimes  expense  materials 
may  be  withdrawn  from  stores  and  instead  of  being  charged  to 
expense  will  be  charged  to  some  asset  account.  It  may  even  be 
diverted  for  use  in  the  finished  product  itself  and  so  become 
productive  material.  On  the  requisition,  there  is  also  a  place 
to  make  a  charge  to  the  department  which  receives  the  material. 
The  lower  part  of  the  requisition  is  given  up  to  space  in  which  to 
describe  the  material,  the  quantity  issued,  price  and  so  on.  It 
is  well  to  have  a  definite  understanding  as  to  who  in  the  plant  is 
authorized  to  sign  expense  requisitions  in  order  to  prevent  waste. 

Tying  up  with  Costs. — After  the  storekeeper  has  issued  the 
material  called  for,  the  requisition  is  sent  to  the  cost  department, 
where  it  is  priced  and  extended.  A  clerk  in  the  cost  department 
enters  on  the  inventory  card,  under  the  head  of  "  withdrawals," 
the  quantity,  price  and  amount.  The  requisitions  are  then 
sorted  first  by  departments  and  then  by  expense  designation. 
At  the  end  of  the  month,  the  requisitions  under  each  classifica- 
tion are  added,  thus  giving  the  figure  which  shows  the  amount 
of  expense  incurred  for  supplies  against  each  of  the  classifications 
of  expense  which  we  desire  to  maintain  on  our  expense  analysis. 

Requisitions  for  productive  materials  are  handled  in  the  same 
way,  except  that  instead  of  sorting  them  in  the  cost  department 
by  departments,  they  are  sorted  out  to  the  different  accounts 
and  then  subdivided  into  the  accounts  which  are  to  be  credited. 

Thus  we  might  have  a  productive  requisition  for  material 
withdrawn  from  the  forgings  inventory.  What  we  desire  is,  of 
course,  to  obtain  the  credit  to  the  forgings  inventory  at  the  end 
of  the  month  and  a  corresponding  charge.  Consequently  by 
sorting  the  requisitions  to  the  accounts  which  are  to  be  charged 
with  the  material,  and  then  sub-dividing  them  to  the  accounts 
which  are  to  be  credited,  we  can,  at  the  end  of  the  month,  by 
adding  up  the  requisitions,  arrive  at  the  amounts  which  we  must 
have. 

Filing  the  Requisitions. — In  order  to  analyze  the  use  of 
expense  materials  so  that  we  may  get  the  proper  items  into  the 
expense  analysis,  we  use  the  form  shown  in  Fig.  85,  "the  expense 


228      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


requisition  distribution."  This  sheet  totals  the  requisitions 
for  supplies  which  have  been  used  for  the  month  and  shows  in 
which  department  and  for  what  purpose  they  were  used. 


The  form  shown  in  Fig.  86,  "the  daily  distribution  of  requisi- 
tions" is  filled  in  daily  for  a  month.  In  a  very  small  shop,  four 
or  five  times  a  month  will  suffice.  It  is  an  analysis  of  all  requisi- 
tions, both  for  direct  and  indirect  materials.  It  is  solely  a 
mechanical  means  by  which  the  charges  for  material  of  all  kinds 
and  from  all  storerooms  are  gotten  into  their  final  resting  place. 


ACCOUNTING  FOR  SUPPLIES 


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If  indirect  material  was  always  used  for  non-productive  purposes, 
and  if  materials  ordinarily  purchased  for  use  as  direct  materials 
were  never  diverted  to  use  as  non-productive  material,  we  would 
be  able  to  get  the  analysis  from  Fig.  85.  As  we  have  seen 
in  former  chapters,  however,  this  is  not  always  true.  It  is 
therefore  necessary  to  have  such  a  distribution  as  that  shown  on 
Fig.  86.  It  will  be  noted  that  this  form  is  divided  vertically  into 
approximately  even  sections  by  the  date  column.  To  the 
right  are  the  various  accounts  which  have  been  credited  by 
having  materials  withdrawn  from  them.  To  the  left  of  the 
date  column  are  the  accounts  which  should  be  charged  with 
those  amounts.  These  columns  are  totaled  and  in  the  lower 
right-hand  corner  they  are  condensed  so  as  to  show  the  journal 
entries  to  the  ledger  accounts  which  are  necessary.  By  means 
of  this  sheet,  we  get  the  correct  debits  and  credits  to  the  various 
ledger  accounts  for  all  material  used,  both  direct  and  indirect. 
This  form,  Fig.  86  does  for  materials  what  Fig.  79  does  for  labor. 
Figure  87  shows  how  the  ledger  accounts  look  after  the  entries 
shown  on  Fig.  86,  have  been  made  to  them.  We  have  simply 
added  to  the  ledger  accounts,  as  they  appeared  at  the  end  of  the 
last  chapter,  the  figures  which  we  developed  in  this  one. 

Figuring  a  Selling  Price. — Many  methods  are  used  for  pricing 
materials  and  it  is  our  experience  that  this  is  one  of  the  points 
which  to  many  men  present  unnecessary  complications.  Of 
course,  if  material  markets  were  completely  stable  and  materials 
cost  the  same  year  in  and  year  out,  there  would  be  no  difficulty 
involved.  But  as  business  men  know — some  to  their  sorrow — 
there  is  no  stability  in  material  prices. 

Confusion  in  cost  accounting  frequently  comes  when  an 
executive  tries  to  solve  the  problem  of  how  he  shall  charge  to  the 
finished  product  a  material  which  has  been  purchased  at  many 
different  price  levels.  The  difficulty  seems  to  be  that  the  average 
executive  confuses  cost  accounting  and  estimating. 

If  a  man  has  in  his  storeroom  30  tons  of  bar  stock,  10  tons  of 
which  cost  him  $60  a  ton,  10  tons  which  cost  $80  a  ton  and  10 
tons  which  cost  $100  a  ton,  it  is  entirely  proper  for  him  in  figuring 
his  selling  price  to  get  the  profit  which  would  come  from  consider- 
ing that  the  stock  used  in  his  product  had  cost  him  the  highest 
price,  provided,  of  course,  that  he  is  able  to  make  the  sale  on  that 
basis.  To  reverse  the  condition,  he  is  generally  driven  in  a 
declining  market  to  set  a  price  based  on  the  present  material 


234      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

costs;  which  would  mean  in  the  case  of  the  man  just  mentioned, 
that  he  would  have  to  figure  that  the  material  in  his  product 
cost  him  $60  instead  of  the  $100  which  it  may  actually  have 
cost  him.  Not  that  he  would  do  this  willingly,  but  competition 
generally  forces  him  to  it. 

However,  estimating  for  the  sake  of  making  a  bid,  or  figuring 
a  selling  price  is  not  identical  with  cost  finding.  If,  on  the  rising 
market  the  material  used  was  purchased  at  the  lower  figure,  the 
cost  must  be  calculated  on  that  basis  and  in  the  declining  market 
if  the  actual  material  which  goes  into  the  product  cost  $100  a 
ton,  that  is  the  figure  which  must  be  carried  into  the  costs 
although  it  might  be  necessary  to  estimate  the  selling  price  on 
the  basis  of  $60  steel. 

Incorrect  Methods  of  Pricing. — It  is  essential  that  the  cost 
figures  reflect  the  actual  operations  of  the  business.  An  estimate 
is  a  different  thing  and  is  ordinarily  dictated  by  outside  conditions 
over  which  the  manufacturer  has  no  control. 

Confusing  estimates  with  costs  has  led  to  many  entirely 
inaccurate  methods  of  pricing  materials.  In  order  to  keep  the 
costs  and  the  stores  inventory  100  per  cent  correct,  some  method 
of  pricing  must  be  adopted  which  will  make  the  total  of  the 
physical  inventory  check  dollars-and-cents-wise  with  the  inven- 
tory record  upon  which  the  inventory  records  in  the  main  books 
of  accounting  depend;  providing,  of  course,  that  there  have  been 
no  actual  physical  shrinkages. 

One  common  but  completely  incorrect  method  of  pricing 
requisitions  is  to  use  a  so-called  standard  price  which  is  used 
throughout  the  year.  As  for  instance  a  plant,  which,  in  a  period 
of  rising  prices,  had  set  the  standard  price  on  its  material  when 
prices  were  low.  The  standard  was  not  changed  throughout  the 
year,  although  the  market  price  of  the  material  rose  rapidly. 
The  result  was  that  the  concern  was  selling  much  of  its  product 
below  actual  cost  at  a  time  when  nearly  any  price  could  have  been 
had. 

Another  common  and  incorrect  method  is  to  charge  out  the 
materials  at  the  price  on  the  last  invoice,  irrespective  of  whether 
materials  purchased  earlier  at  a  different  price  had  been  used  or 
not.  By  this  method,  a  completely  incorrect  figure  is  reached 
when  the  physical  inventory  is  taken. 

Another  method  which  has  met  with  a  great  deal  of  favor  is 
to  use  an  average  price,  averaging  in  the  old  price  with  the  price 


ACCOUNTING  FOR  SUPPLIES 


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236      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

of  material  received  later  and  setting  up  a  new  average  each 
month,  when  the  stores  inventory  is  relieved.  This  also  is 
incorrect. 

The  "Exhaustion  of  Lot"  Method. — The  only  correct  method 
that  we  know  of  is  the  one  dictated  by  common  sense,  which  is 
to  charge  out  the  material  at  the  price  actually  paid  for  the 
oldest  material  in  stock,  first.  This  is  sometimes  called  the 
"exhaustion  of  lot"  method.  It  will  occur  to  the  reader  that 
it  is  not  necessary  in  practice  actually  to  use  that  material  first 
which  was  received  first,  but  that  in  pricing  out  the  inventories 
the  price  of  the  first  lot  received  should  be  used  until  a  quantity 
equivalent  to  that  lot  has  been  exhausted.  The  physical  inven- 
tory is  priced  in  the  same  way. 

To  exemplify  the  use  of  this  method  let  us  consider  the  case  of 
the  man  already  mentioned  who  had  on  hand  30  tons  of  steel, 
consisting  of  three  lots  of  10  tons  each.  In  pricing  out  this  steel 
in  a  rising  market,  he  would  use  the  figure  of  $60  a  ton  until  10 
tons  of  steel  had  been  used,  whether  or  not  it  was  the  actual 
10  tons  of  steel  which  was  used.  When  this  10  tons  had  been 
used,  he  would  commence  charging  steel  at  $80  a  ton  until  10 
more  tons  had  been  used  and  so  on.  The  same  method  in  pricing 
holds  good  whether  the  materials  are  "productive"  or  direct 
charges,  or  are  indirect  expense  materials.  By  this  method, 
agreement  is  maintained  between  the  physical  inventory  and  the 
book  inventory. 

So  much  for  the  actual  method  of  pricing.  In  Fig.  88  are 
shown  the  departmental  expense  analyses  which  have  already 
been  shown  in  former  chapters.  You  will  note,  however,  that 
we  have  added  to  these  analyses  the  expense  materials  properly 
chargeable  to  each  department.  In  later  chapters  we  will  show 
how  this  overhead  expense  is  distributed  to  the  product. 


CHAPTER  XXI 


GETTING  THE  OVERHEAD  INTO  THE  FINISHED 
PRODUCT 

It  was  once  the  practice  to  keep  cost  accounting  entirely 
separated  from  the  general  accounting  of  a  business,  with  the 
result  that  the  information  derived  from  the  two  sources  was  more 

TRIAL  BALANCES 

as  of 
January  31 


Dr. 

Cr. 

Material  purchased  finished 

$       25  232  02 

Lumber  packing  material  

923  .  80 

Forgings  and  castings                             .  .  . 

54,274  62 

General  stores 

6  126  30 

Goods  finished  and  in  process  
Buildings                                           

245,463.56 
452,601.78 

Bar  stock 

27,341  13 

Hardening  and  carbonizing  material  .... 
Fuel                                    

4,300.56 
5,371.29 

Machinery 

372,380.42 

Accounts  receivable 

324  ,  136  .  77 

Iron  and  steel  

25,137.47 

Cash                                         

95,127.30 

Accounts  receivable 

275,129  30 

Real  estate  

50,000.00 

Surplus 

325  ,  966  .  52 

Capital  stock                        

1,000,000.00 

Manufacturing  expense 

14  ,  582  .  86 

Reserve  for  dep.  buildings 

3,711.17 

IVIachinery  insurance 

112.50 

Tax  machinery       

1,387.80 

81.58 

Building  insurance                 

Tax  buildings                                         .... 

101.75 

Selling  expense 

49.55 

1,319.47 

Reserve  for  dep  machinery 

1,319.47 

$1,655,429.76 

$1,655,429.76 

FIG.  89. — Trial  balance  sheet. 
237 


238      PRODUCTION  ENGINEERING  AND  COST  KEEPING 
SUMMARY  OF  JOURNAL  ENTRIES  UP  TO  MAKING  UP  OF  EXPENSE  ANALYSIS 


Dr. 

Cr. 

Manufacturing  expense  ...                                                        .  •     .  . 

$  5,463  97 

Machine  depreciation  

3,711    17 

Building  depreciation  
Machine  taxes 

1,319.47 
81   58 

Building  taxes  .    .  . 

101   75 

Machine  insurance  

112  50 

Building  insurance  
Monthly  charge  for  the  above  ;  see  fixed  charge  sheet  

137  .  50 

1  92 

Manufacturing  expense                                                      

1  92 

Amount  of  light  for  the  month  charged  on  entry  to  Manufactur- 
ing Expense,  but  on  distribution  found  to  belong  to  Selling 
Expense. 

21  82 

Manufacturing  expense  
Amount  of  Fixed  Charge  belonging  to  Selling  Expense;  see 
Fixed  Charge  Sheet. 

21.82 

5,307  53 

Goods  finished  and  in  process                                           

10,615  06 

Payroll                                                                          

15,992.59 

To   transfer   respectively   the   non-productive   labor   and   the 
productive  labor  to  the  above  accounts. 

525  00 

Fuel                                                                      

525  00 

Coal  used  during  the  month. 

1   456  73 

124  65 

371  80 

960.28 

Materials  used  for  expense  purposes  during  the  month. 

20  25 

10  20 

10.05 

Materials  used  for  Selling  Expense  during  the  month. 

46,765  80 

21,781.38 

13,613.85 

9  ,  885  .  03 

2  50 

1,348   18 

134.86 

Above  being  the  withdrawals  from  the  inventories  and  put  into 
process  during  the  month. 

210.11 

Bar  stock                         

35.01 

175.10 

Amounts  withdrawn  from  above  inventories  during  the  month 
for  the  benefit  of  the  buildings. 

GETTING  OVERHEAD  INTO  PRODUCT 


239 


Dr. 

Cr. 

Machinery  

409   15 

Bar  stock  

215  15 

General  stores  

193  99 

Amounts  withdrawn  from  above  inventories  during  the  month 
for  the  benefit  of  the  machinery. 

521   61 

Manufacturing  expense  

521  61 

Share  of  office  chargeable  to  Selling  Expense. 

Manufacturing  expense  .  . 

8  36 

Profit  and  loss  due  to  abnormal  expense 

8  36 

Difference  between  the  actual  toolroom  rate  and  normal  rate  on 
toolroom  charge  to  General  Factory. 

Buildings 

27  33 

Manufacturing  expense 

27  33 

Toolroom  labor  and  expense  charged  to  buildings. 

Machinery  

244  22 

Manufacturing  expense  

244  22 

Toolroom  labor  and  expense  charged  to  machinery. 

Selling  expense 

450  00 

Goods  finished  and  in  process 

450  00 

Shipping  Room  labor  that  was  posted  to  Goods  Finished  and  in 
Process,  to  charge  it  to  Selling  Expense. 

Selling  expense  

853  55 

Manufacturing  expense  

853  55 

To  transfer  the  shipping  expense  to  selling  expense. 

FIG.  90. — Summary    of    journal    entries    up    to    the    making   up    of   expense 

analysis.      .' 

likely  than  not  to  differ  widely.  Since  correct  costs  depend  upon 
charging  every  expenditure  shown  by  the  general  books  to  each 
item  of  the  product  in  the  proper  proportion,  we  have  shown 
throughout  how  each  item  of  costs  is  handled,  not  only  in  the 
cost  system  but  in  the  general  books. 

Unless  the  cost  system  ties  in  frequently  with  the  general 
books  of  account  we  have  no  check  on  the  accuracy  of  the  costs 
and  the  system  would  be  in  effect  the  inaccurate  and  old  fashioned 
single  entry  system. 

Figure  89  is  a  trial  balance  taken  from  the  books  after  consid- 
eration has  been  given  to  the  balances  which  existed  in  the  inven- 
tories when  the  books  were  opened  at  the  beginning  of  the  year 
These  balances  were  purposely  omitted  in  the  ledger  pages  which 
have  appeared  so  far,  in  order  to  prevent  confusion  as  subsequent 


240      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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GETTING  OVERHEAD  INTO  PRODUCT 


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242      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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GETTING  OVERHEAD  INTO  PRODUCT 


243 


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244      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

items  were  entered.  This  trial  balance  shows  that  the  manufac- 
turing expense  account  has  a  debit  balance  of  $14,582.86,  which 
is  the  controlling  figure.  When  all  of  the  contributory  depart- 
ment expenses  have  been  distributed,  the  total  expenses  of  the 
productive  departments  must  balance  with  this  figure  after  it 
has  been  modified  by  journal  entries.  The  journal  entries  will 
be  discussed  as  the  need  for  making  them  appears.  A  complete 
list  of  them  with  the  amounts  of  each  is  given  in  Fig.  90. 

Apportioning  the  Overhead. — In  Chap.  XVIII  we  discussed 
theoretically  the  bases  on  which  the  various  contributory  depart- 
ments' expense  can  be  distributed  to  the  productive  departments, 
choosing  those  methods  best  adapted  to  the  needs  of  this  part- 
icular shop.  We  shall  now  describe  the  actual  clerical  steps 
by  which  all  of  the  overhead  is  gotten  into  the  product. 

On  the  expense  analysis  of  the  boiler  department,  shown  in 
Fig.  91,  the  total  direct  expense  is  seen  to  be  $791.05.  To  this 
amount  have  been  added  $3.29  for  lighting  and  $142.27  for  fixed 
charges,  making  a  total  boiler  expense  of  $936.61.  It  seems  well 
to  explain  here  that  for  e*ach  department  the  direct  expense  is 
totaled  separately  'from  the  fixed  charges  and  the  shares  of  the 
expense  of  other  departments.  The  direct  items — sometimes 
called  the  controllable  expense — are  those  which  are  under  the 
control  of  the  one  in  charge  of  the  department,  and  for  which 
he  can  be  held  responsible.  He  cannot,  however,  be  held  respon- 
sible for  a  rise  in  the  other  items  which  are  allocated  to  him  by 
higher  authorities. 

Experience  has  shown  us  that  in  a  plant  of  this  kind  about 
90  per  cent  of  the  steam  goes  for  power  and  10  per  cent  for  heating 
the  buildings,  so  we  make  the  distribution  in  this  proportion  at 
the  bottom  of  the  boiler  department  expense  analysis.  The  90 
per  cent  is  at  once  added  to  the  power  department  expense 
analysis,  while  the  correct  proportion  of  the  heating  charge  for 
each  department  in  the  plant  is  worked  out  on  the  basis  of  floor 
space,  on  the  sheet  shown  in  Fig.  92  for  "heat  distribution." 
The  total  of  these  amounts  must  of  course  be  $93.66,  which  is 
10  per  cent  of  the  total  boiler  department  expense.  These 
amounts  are  posted  to  the  expense  analysis  of  the  various  depart- 
ments, absorbing  all  of  the  $93.66. 

On  the  power  department  expense  analysis  you  will  find  the 
$842.95  which  is  the  90  per  cent  of  boiler  expense  carried  forward 
to  the  power  department.  The  " power  distribution"  sheet  in 


GETTING  OVERHEAD  INTO  PRODUCT 


245 


Fig.  92  analyzes  the  power  consumption  of  all  departments  and 
gives  the  amount  to  be  charged  against  each  department.  The 
total  of  these  amounts  must  be  $1,198.76  to  check  with  the  total 
expense  developed  for  the  power  department. 

Expense  Divisions. — The  expense  analysis  of  the  office  depart- 
ment shows  a  total  charge  of  $1,304.02  which  has  benefited  both 


YEAR 

Dept.  -  Tool  ROOB  Distribution 

.7    .  ~ 

A..   _ 

Labor 

General  Factory 

65 

71 

00 

76  84 

Autonatlo 

47 

58 

40 

42  58 

Milling 

15 

10 

60 

13  52 

Uthe 

8 

5 

12 

7  21 

Planer 

12 

9 

80 

10  84 

Polishing 

Hardening 

Assembling 

42 

SI 

00 

57  86 

Shipping 

Buildings 

17 

12 

00 

15  55 

Machinery 

140 

118 

00 

126  22 

Productire  Labor 

812 

481 

10 

551  78 

Total 

»78 

777 

02 

881  78 

YEAR 

Dept.  -  Heat  Distribution. 

Floor 

Space    % 

Office          4580   5.7 

5 

Tool  ROD.        7200   5.8 

5 

General  Factory   15890  11 

10 

Autoiatio        17850  14 

15 

Milling          5000   2 

2 

Lathe          25400  19 

18 

45 

Planer          9000   7 

6 

74 

Polishing        5000   2.4 

2 

25 

Assembling       29000  2S.S 

22 

01 

Shipping        12000   9.8 

e 

99 

Total    122900  100* 

95 

66 

YEAR 

t  ibuti  n 

Dep  .    r   r 

1 

Tool  ROOB             8. 

95 

90 

General  Factory        5.5 

66 

95 

Automatic             52.5 

589 

60 

Hilling              13.  S 

161 

83 

Lathe               12.5 

149 

84 

Planer             15. 

179 

81 

Hardening             1. 

11 

99 

Pollehing             7. 

85 

92 

Aaeecbling            5.5 

41 

96 

Snipping             1.5 

17 

98 

.Total       lOOt 

'1198 

76 

YEAR 

it  ibuti  n  General      etc 

• 

Depart-ent 

Hours 

Expense 

Tool  ROOB 

978 

118    24 

Automatic 

2001 

241     92 

Milling 

5000 

60S     58 

Lathe 

4016 

485    41 

Plaaer 

4100 

495     69 

Polishing 

1700 

205    55 

Hardening 

1275 

154     IS 

Assembling 

2112 

576    24 

Shipping 

1192 

144     11 

T»W 

25575 

2826    87 

FIG.  92. — Distribution  sheets. 

the  manufacturing  and  the  selling  ends  of  the  business.  We 
decided  to  charge  60  per  cent  of  the  total  office  expense  to  general 
factory  and  40  per  cent  to  selling,  inasmuch  as  a  study  of  the 
activities  of  the  clerks  and  executives  showed  that  their  time  was 
divided  roughly  in  that  proportion.  The  distribution  is  shown 
at  the  bottom  of  the  office  department  expense  analysis. 


246      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Here  it  becomes  necessary  to  make  the  first  journal  entry  which 
consists  of  debiting  the  " selling  expense"  ledger  account  with 
$521.61  and  crediting  the  " manufacturing  expense"  ledger 
account  with  $521.61;  this  being  the  share  that  the  selling  end 
of  the  business  has  to  bear  of  the  total  office  charge. 

In  Chap.  XVIII,  we  explained  that  the  " general  factory" 
department  is  simply  the  gathering  ground  for  those  items  of 
overhead  expense  which  benefit  the  shop  as  a  whole  rather  than 
any  specific  department.  The  total  of  these  items  gathered  on 
the  general  factory  expense  analysis  is  $2,826.87.  We  decided 
that  for  this  shop  the  productive  hour  would  give  the  fairest 
IttHsnon  which  to  charge  this  expense  to  the  productive  depart- 
ments. Therefore  we  divide  the  total  general  factory  expense 
by  the  total  productive  hours  of  the  plant,  giving  a  charge  of 
12.09  c.  per  productive  hour,  which  will  absorb  the  general 
factory  charge. 

Sometimes  it  is  desirable  to  spread  this  expense  as  a  percentage 
of  the  productive  labor.  Therefore,  on  the  expense  analysis  we 
have  worked  out  this  ratio  as  25.91  per  cent. 

Perhaps  at  this  point  it  is  well  to  call  attention  to  the  fact  that 
in  this  book  we  have  purposely  made  the  figures  ridiculous  so  far 
as  ratios,  rates  and  amounts  are  concerned.  This  is  so  that 
there  will  be  no  likelihood  of  the  reader  accepting  the  figures  as 
typical  of  good  machine  shop  practice  and  using  them  as  a 
standard  against  which  to  compare  his  own  shop's  performance. 

In  Fig.  92  is  shown  a  sheet  called  "  distribution  general  factory," 
listing  the  department  and  showing  for  each  the  number  of  pro- 
ductive man  hours  in  that  department.  Now,  the  productive 
man  hours  in  any  department,  multiplied  by  the  12.09  c.  rate 
for  the  general  factory  gives,  in  the  last  column,  the  share  of  the 
general  factory  charge  which  each  department  must  bear. 
These  are  now  carried  forward  to  the  expense  analyses  of  each 
department.  This  absorbs  all  of  the  expense  of  the  contributory 
departments — except  for  the  tool  room — into  the  productive 
departments. 

Distributing  Toolroom  Expense. — The  toolroom  expense  is 
often  perplexing.  To  get  the  widest  application  we  have  chosen 
to  consider  the  medium  size  shop  in  which  the  toolroom  takes  care 
of  the  machine  repair  work  and  may,  in  emergency,  do  productive 
work  upon  the  product  that  is  sold.  Its  expense  analysis  is 
worked  up  in  the  usual  way  and  we  find  that  it  shows  a  total 


GETTING  OVERHEAD  INTO  PRODUCT  247 

expense  of  $881.78.  The  labor  in  the  toolroom  can  be  charged 
out  to  the  other  departments  on  the  basis  of  the  work  actually 
performed  for  them,  just  as  the  labor  of  a  productive  department 
is  charged  to  the  product.  In  fact,  we  may  properly  look  upon 
the  toolroom  as  an  outside  concern  which  we  employ  to  manu- 
facture tools  and  do  miscellaneous  repair  work  for  us.  We 
think  if  the  reader  gets  this  point  of  view,  the  point  which  we 
seek  to  bring  out  will  become  clear. 

We  find  that  in  this  month  the  toolroom  put  in  978  hrs.  which 
should  be  charged  to  other  departments  as  shown  on  the  "  tool- 
room distribution/'  Fig.  92.  This  gives  us  a  complication,  for 
the  general  factory  department  had  service  from  the  toolroc.^  *~ 
the  extent  of  85  hrs.  But  on  the  toolroom  expense  analysis 
there  is  a  share  of  general  factory  amounting  to  $118.24.  With- 
out recourse  to  higher  mathematics,  it  is  obviously  impossible 
to  close  either  one  of  these  departments  until  the  total  expense  of 
both  has  been  ascertained.  As  we  maintain  a  cost  system  to  get 
us  commercial  results  and  not  as  a  gymnasium  for  mental 
acrobatics,  we  use  a  method  which  gives  us  sufficiently  accurate 
results  at  little  effort  We  assume  a  standard  or  normal  rate  per 
hour,  which  in  this  case  is  $1.  On  the  general  factory  expense 
analysis  is  a  charge  of  $71  covering  85  hrs.  time  of  a  toolroom 
workman  which  was  made  from  the  service  cards  of  the  toolroom 
workmen.  The  item  of  " toolroom  expense  (normal)"  is  the 
charge  for  85  hrs.  work  done  by  the  toolroom  and  charged  for  at 
the  normal  rate  of  $1  per  hour. 

As  soon  as  the  general  factory  rate  has  been  developed  and 
the  toolroom's  share  charged  to  the  toolroom  on  this  basis,  the 
actual  rate  for  the  toolroom  is  developed.  This  gives  an  actual 
hourly  rate  for  the  toolroom  of  $0.90  16/100. 

The  Toolroom  Distribution  Sheet. — On  the  toolroom  distri- 
bution sheet,  Fig.  92,  the  toolroom  expense  charge  for  each  depart- 
ment is  worked  out  by  multiplying  this  actual  hourly  rate  by 
the  number  of  chargeable  hours.  For  general  factory  this  gives 
rise  to  a  discrepancy,  for  on  the  distribution  sheet  the  general 
factory's  share  of  the  toolroom  expense  is  $76.64,  while  on  the 
general  factory's  expense  analysis  it  was  charged  with  $85  at 
the  normal  rate.  Now,  were  we  to  leave  things  in  this  condition 
we  would  be  out  of  balance  with  the  controlling  ledger  account  by 
the  difference  between  $76.64  and  $85,  which  is  $8.36.  This  is 
corrected  with  a  journal  entry  debiting  manufacturing  expense 


248      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

and  crediting  " profit  and  loss  due  to  abnormal  expense"  with 
$8.36.  In  the  next  chapter  we  will  discuss  this  question  of  normal 
and  abnormal  expense  in  detail. 

The  toolroom  distribution  sheet  shows  17  hrs.  charged  to  the 
buildings,  and  140  hrs.  to  machinery.  These  are  not  expenses 
of  operating,  but  are  rather  asset  items,  being  additions  to  existing 
buildings  and  machines.  We,  therefore,  relieve  the  manufactur- 
ing expense  account  by  means  of  journal  entries  debiting  build- 
ings with  $27.33  the  sum  of  toolroom  labor  and  expense,  and 
machinery  in  the  same  way  with  $244.22  and  crediting  manu- 
facturing expense  with  similar  amounts.  The  toolroom  charges 
to  other  departments  together  with  these  charges  to  assets 
absorb  all  of  the  $881.78  toolroom  expense  except  the  $551.78 
covering  the  612  hrs.  put  in  as  productive  labor  on  the  concern's 
regular  product.  This  $551.78  will  be  released  in  the  final 
cost  of  our  product,  just  as  is  the  expense  of  any  other  productive 
department. 

The  expense  of  all  contributory  departments  now  rests  in  the 
productive  departments,  each  of  which  has  taken  its  fair  share. 
The  next  step  is  to  get  the  expense  of  the  productive  departments 
into  the  product. 

Let  us  now  consider  the  expense  analysis  of  the  automatic 
department.  In  earlier  articles  we  have  described  the  items 
marked  V.R.,  P.R.,  and  R.  The  toolroom  labor  and  expense 
have  just  been  discussed.  Under  the  heading  of  " shares,"  you 
will  note  light,  heat,  power,  fixed  charges  and  general  factory, 
the  origin  of  which  we  have  discussed.  The  total  expense  is 
thus  seen  to  be  $3,524.63,  and  a  total  of  750  machine  hrs.  have 
been  put  in  by  the  department.  By  dividing  the  total  expense, 
$3,425.63  by  the  750,  we  get  a  rate  per  machine  hour  of  $4.69. 
This,  then,  furnishes  a  basis  on  which  the  product  processed  in 
the  automatic  department  can  be  justly  charged  with  the  depart- 
ment's expense.  From  a  factory  report,  we  learn  the  number  of 
hours  that  have  been  charged  against  each  order,  part  or  job  and 
to  get  the  actual  cost  for  that  month  multiply  them  by  the  $4.69 
rate.  Old-fashioned  cost  systems  would  use  that  as  the  cost; 
the  best  modern  practice  is  to  use  instead  of  the  $4.69,  a  normal 
rate  and  carry  the  difference  between  the  normal  and  actual  to 
profit  and  loss.  This  will  be  explained  in  detail  in  a  later  article. 

Setting  Machine  Hour  Rates. — This  is  a  good  place  to  warn 
the  reader  that  the  machine  hours  of  a  department  are  not  neces- 


GETTING  OVERHEAD  INTO  PRODUCT  249 

sarily  the  same  as  the  hours  reported  on  the  workman's  service 
card.  It  is,  therefore,  necessary  that  the  correct  method  of 
keeping  time  be  used  in  the  automatic  department.  The  method 
to  choose  will  depend  upon  whether  the  work  is  continuous  and 
whether  it  is  possible  to  keep  the  same  men  regularly  on  the 
same  groups  of  machines.  If,  as  is  usually  true,  the  work  is 
not  continuous,  it  is  best  to  use  a  time  card  for  each  machine, 
on  which  is  reported  the  number  of  machine  hours  that  the  work 
took  from  the  beginning  of  the  set-up  time  until  the  machine 
stopped  running  on  that  part.  The  men  in  the  automatic 
department  then  report  their  time  as  operators  or  set-up  men 
but  not  against  any  individual  job.  A  labor  cost  per  machine 
hour  is  thus  developed  and  handled  as  an  over-all  labor  charge. 
For  the  automatic  department,  this  plan  will  do,  as  the  operators 
differ  but  slightly  in  skill  and  rate.  Skill  enters  mostly  in  making 
the  set-ups. 

The  need  for  charging  time  in  this  way  is  due  to  the  peculiar 
conditions  which  exist  in  the  automatic  department.  The  man 
who  ordinarily  runs  say  four  machines  may  find  some  morning 
only  three  machines  set  up  and  ready  to  run.  Half  an  hour 
later,  one  of  these  machines  may  finish  and  the  fourth  be  ready 
for  him  to  start.  During  the  week  he  may  run  anywhere  from 
one  to  four  machines  at  a  time.  It  would  entail  needless  clerical 
effort  to  report  his  time  and  to  get  the  labor  rate.  If  in  a  special 
case  it  seems  advisable  to  report  the  man's  time  exactly  against 
any  part,  it  can  be  done  accurately.  If  he  normally  runs  four 
machines,  his  time  is  applied  one  fourth  to  each.  Then  when  one 
of  his  machines  is  down  a  time  card  is  turned  in  for  that  machine 
as  being  idle  and  the  labor  cost  at  one  fourth  the  man's  rate  is 
thrown  into  the  department's  expense.  It  would  be  obviously 
wrong  to  divide  the  man's  rate  among  the  machines  he  actually 
happens  to  be  running  at  any  time.  Suppose  for  example,  a 
man  gets  60  c.  an  hour  and  normally  runs  four  machines  each  of 
which  is  charged  with  a  labor  cost  of  15  c.  an  hour.  If,  however, 
two  machines  went  down,  the  parts  on  the  two  machines  which 
are  still  operating  would  be  charged  at  30  c.  an  hour,  thus  penaliz- 
ing a  part  for  a  fault  of  management.  The  better  way,  where 
labor  cost  must  be  charged  to  the  product  direct  is  to  throw  30 
c.  into  the  overhead  of  the  department  and  charge  each  of  the 
machines  which  are  operating  with  the  customary  15  c.  per  hour 
for  labor. 


250      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Either  of  these  two  plans  can  be  adopted,  although  we  believe 
it  is  best  to  use  the  labor  cost  per  machine  hour,  as  first  described. 
So  much  for  the  method  of  accounting  for  time  and  arriving 
at  the  total  machine  hours  in  the  automatic  department.  We 
also  show  on  the  expense  analysis  the  productive  labor  dollars 
amounting  to  $1,068.17.  This  figure  has  been  taken  from  the 
report  described  in  Chap.  XIX  on  labor.  We  are  thus  able 
to  develop,  for  comparison  but  not  for  purposes  of  costing,  a 
ratio  of  expense  to  productive  labor  of  329.96  per  cent,  as  this 
is  a  figure  that  interests  some  executives. 

A  Common  Error. — Before  leaving  the  discussion  of  the 
machine  hour  rates  as  used  in  the  automatic  department  it  may 
be  well  to  point  out  the  fallacy  of  trying  to  make  the  machine 
hour  rate  include  the  labor  of  the  machine's  attendant.  Perhaps 
where  the  true  machine  hour  rate  is  very  high,  the  charge  for 
labor  low  and  uniform  throughout  the  department,  the  error 
may  be  negligible  if  the  operator  runs  an  unvarying  number  of 
machines.  But  we  do  not  believe  the  practice  advisable;  for 
by  combining  the  labor  and  expense  into  one  rate,  we  are  never 
able  to  analyze  the  cost  into  its  elements.  It  is  only  by  having 
these  elements  separate  in  the  final  costs  that  we  can  correct 
any  deviation  from  the  normal.  When  figures  are  lumped  they 
are  hard  to  separate;  they  might  as  well  be  buried. 

The  reason  some  cost  departments  include  the  workman's 
wage  in  the  machine  hour  rate  is,  as  a  rule,  to  make  it  easier  for 
them  to  estimate  on  new  work;  but  like  most  short  cuts  of  a 
lazy  man  the  result  is  usually  incorrect. 

Other  Departmental  Expense, — The  expense  of  the  milling 
department  and  of  the  lathe  department  is  handled  in  exactly 
the  same  way  as  for  the  automatic.  While  in  the  automatic 
department  the  machine  hours  were  greater  than  the  man  hours 
it  would  be  well  to  note  that  the  opposite  condition  sometimes 
exists  in  the  planer  department,  for  there  a  man  and  a  helper 
may  operate  a  single  machine. 

For  several  reasons  the  expense  of  the  polishing  department  is 
not  released  on  the  machine  hour  basis.  First,  it  is  difficult  to 
secure  reports  of  the  machine  activity;  second,  the  work  to  be 
performed  is  not  so  much  a  question  of  machine  time  as  it  is 
man  time;  and  third,  the  polishing  equipment  is  an  aid  to  hand 
work  rather  than  productive  machine  tools.  We  therefore 
release  the  expense  of  the  polishing  department  upon  the  basis 


GETTING  OVERHEAD  INTO  PRODUCT  251 

of  the  percentage  of  expense  to  productive  labor.  The  labor  cost 
in  dollars  and  cents  is  accumulated  against  each  order  or  part  and 
the  proper  percentage,  in  this  case  76.02  per  cent,  is  added  to 
absorb  the  overhead.  Thus,  a  part  on  which  $5  has  been  spent 
for  polishing  labor  would  absorb  76.02  per  cent  of  $5  or  $3.81  for 
expense. 

Applying  the  expense  of  the  hardening  department  to  the 
product  presents  a  problem  different  from  any  of  the  foregoing, 
although  its  expenses  are  gathered  in  exactly  the  same  way. 
But  it  is  impossible  to  charge  the  number  of  men  or  machine 
hours  against  each  part  or  piece,  for  in  one  receptacle  many 
different  kinds  of  work  may  be  packed  and  treated  at  the  same 
time.  To  determine  as  nearly  as  we  can  the  cost  per  piece  for 
hardening,  we  get  a  report  of  the  number  of  pieces  which  have 
gone  through,  together  with  their  weight.  In  this  month, 
25,198  pieces  were  hardened  at  a  productive  labor  cost  of  $509.22, 
which  is  a  labor  cost  of  $2.02  per  hundred  pounds. 

If  the  hardening  department  is  called  upon  to  give  several 
different  treatments  to  different  materials,  a  set  of  ratios  may  be 
set  up  based  upon  the  number  of  pieces  that  could  be  treated  by 
a  furnace  were  the  furnace  assigned  to  that  particular  piece. 
This  ratio  would  also  consider  the  length  of  time  that  the  pieces 
have  to  remain  in  the  furnaces.  These  ratios  are  applied  to 
the  weight  of  the  pieces  that  have  been  treated  during  the  month 
and  the  number  of  unit  pounds  produced  is  figured.  Now,  if 
a  piece  has  a  unit  value  of  0.5  and  1,000  of  these  pieces  have 
gone  through  during  the  month,  there  would  be  500  unit  pounds 
and  the  general  cost  for  the  unit  pounds  for  the  hardening  depart- 
ment is  arrived  at.  Then,  by  multiplying  the  unit  for  the 
particular  piece  by  its  weight,  the  cost  for  that  piece  per  pound  is 
determined. 

In  the  assembling  department,  because  little  of  the  work  is 
done  with  machine  tools,  we  release  the  expense  by  taking  the 
percentage  of  expense  to  the  productive  labor  dollar  in  the  same 
way  as  in  the  polishing  department. 

Some  cost  accountants  believe  that  it  is  more  accurate  to 
release  the  assembly  department  expense  on  the  productive  hour 
instead  of  on  the  labor  dollar.  While  theoretically  that  may  be 
true  in  some  plants  we  must  remember  that  we  seek  to  develop 
our  costs  only  so  that  they  may  serve  us.  When  they  are  devel- 
oped to  an  impractical  and  expensive  degree  of  accuracy,  the 


252      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

business  becomes  the  slave  of  the  cost  system.  Since  experience 
shows  that  in  the  assembly  department  the  hourly  wage  rate 
differs  very  little  between  man  and  man,  the  difference  in  the 
final  result,  by  using  either  basis,  is  negligible.  The  productive 
payroll  total  is  easy  to  get.  Therefore,  when  we  use  that  figure 
instead  of  the  productive  hours  we  leave  the  cost  department  free 
to  devote  its  time  to  other  and  more  useful  work. 


Dr. 

Charge  register  
Expense  requisition  .  . 
N.  P.  labor  
Fuel  
Fixed  charges 

$  1,829.63 
1,456.73 
5,307.53 
525.00 
5,463  97 

Cr. 

Lights  to  S.  E  
Fix.  chg.  to  S.  E  
Selling  from  office  
Tool  room  chg.  to  bldgs  . 
Tool  room  chg.  to  mach 

$           1.92 
21.82 
521.61 
27.33 
244  22 

Abn.  toolroom  exp  .  .  . 

8.36 

Shipping  to  selling  exp  .  . 

853.55 

Balance  .  .  . 

$  1,670.45 

12  920  77 

$14,591.22 

$14,591.22 

EXPENSE  BY  DEPARTMENTS 

Tool  room $       551 .78 

Automatic 3 , 524 . 63 

Milling 1,739.32 

Lathe 2,294.56 

Planer 1,737.94 

Polishing 551 .37 

Hardening 1 , 087  . 43 

Assembling 1 ,433 . 74 


$12,920.77 
FIG.  93. —  Manufacturing  expense  ledger  account. 

The  total  expense  of  the  shipping  department — $1,303.55 — is 
charged  in  a  lump  to  selling  expense  by  means  of  a  journal  entry 
debiting  selling  expense  and  crediting  shipping.  The  correctness 
of  considering  shipping  as  a  selling  expense  is  apparent  when  we 
realize  that  once  the  goods  have  been  moved  from  the  assembly 
floor,  they  are  manufactured  and  the  factory  has  ceased  to  be 
interested  in  them. 

Where  Do  Selling  Costs  Start?— There  has  been  no  little 
discussion  as  to  the  dividing  line  between  manufacturing  costs 
and  selling  costs.  It  seems  apparent  that  if  the  product  of  the 
factory  can  be  taken  directly  from  the  assembly  floor  and  installed 


GETTING  OVERHEAD  INTO  PRODUCT  253 

in  the  plant  of  a  next  door  neighbor,  the  manufacturing  cost  is 
complete  with  assembly.  A  case  in  point  is  of  one  order  on 
which  there  was  no  crating  cost  or  shipping  cost,  the  finished 
product  being  placed  directly  upon  the  purchaser's  trucks, 
uncrated,  and  carried  away.  But  some  of  this  concern's  product 
was  crated  and  shipped  to  other  cities.  Sometimes  the  sales 
department  chose  to  sell  other  orders  for  export  which  required 
heavier  crating  and  consequently  a  heavier  shipping  charge. 
There  is  no  reason  why  the  manufacturing  department  should 
be  saddled  with  costs  due  solely  to  the  territory  in  which  the 
sales  department  chose  to  sell. 

In  Fig.  93  is  shown  the  appearance  of  the  manufacturing 
expense  ledger  account  as  it  appears  after  all  of  the  journal 
entries  shown  on  Fig.  90  have  been  made.  Each  debit  and  credit 
entry  shows  its  source.  The  difference — $12,920.77 — has  pre- 
sumably been  charged  ultimately  to  some  productive  department 
and  so  has  found  its  way  into  the  product.  This  amount  is 
therefore  credited  to  manufacturing  expense  and  debited  to 
"goods  finished  and  in  process."  To  prove  this  figure,  we  list 
below  the  ledger  account  in  Fig.  93  the  productive  departments 
with  the  total  expense  for  each  one  as  shown  by  the  expense 
analysis.  The  total  of  these  figures  is  $12,920.77,  checking 
with  the  balance  in  the  manufacturing  expense  account  and  so 
proving  the  correctness  of  our  accounting  for  expense.  Thus  we 
know  that  every  item  of  expense  appears  somewhere  on  the 
expense  analysis  and  that  finished  product  will  absorb  it  all. 


CHAPTER  XXII 
HANDLING  ABNORMAL  EXPENSE 

Suppose  you  own  a  shop  able  to  turn  out  200  lathes  a  month. 
Suppose  that,  normally,  the  overhead  expense  runs  $10,000  a 
month,  or  at  the  rate  of  $50  per  unit  of  output. 

Along  comes  a  business  depression  and  the  orders  fall  off  so 
that  it  is  doubtful  if  you  can  sell  even  100  lathes  a  month.  The 
plant  runs  half  time.  You  will  at  once  cut  down  on  some  items 
of  overhead  which  can  be  made  to  follow  roughly,  the  shop's 
activity. 

But  there  are  some  items  of  the  overhead,  such  as  the  fixed 
charges  and,  very  likely,  the  salaries  of  the  superintendent  and 
other  executives,  which  are  uncontrollable.  You  can  not  very 
well  cut  them  in  proportion  to  the  falling  off  in  output.  If  you 
are  careful  perhaps  you  can  cut  the  overhead  of  your  plant  to 
around  $8,000.  Each  lathe  you  make  will  then  have  to  carry 
$80  of  overhead.  That  means  that  your  product  costs  you  more 
when  orders  are  hard  to  get  than  when  business  is  good.  If 
you  attempt  to  get  back  your  actual  cost,  you  must  raise  the 
selling  price. 

But  the  sales  department  has  little  difficulty  in  convincing 
you  that  to  get  orders  enough  to  fill  the  plant,  the  selling  price 
must  be  cut.  It  looks  like  another  one  of  those  vicious  circles. 
Just  when  you  need  to  attract  new  orders  you  find  that  because 
production  is  low,  your  costs  are  abnormally  high.  Obviously, 
if  you  attempt  to  base  your  selling  prices  on  your  actual  costs 
you  will  make  it  still  harder  to  attract  sufficient  business  so  that 
you  can  get  back  to  normal  costs.  That  is  the  problem  that 
faces  every  owner  of  a  machine  shop  whenever  business  goes  into 
one  of  its  seemingly  periodical  slumps. 

Normal  and  Abnormal  Costs. — But  in  lesser  degree  the  same 
fundamental  problem  is  present  even  during  times  of  normal 
business.  The  activity  of  a  plant  fluctuates  somewhat  from 
month  to  month,  reducing  the  cost  of  the  product  a  little  with 
extra  activity  and  raising  it  when  the  plant  is  less  active.  Even 
with  an  accurate  cost  system  the  executive  is  puzzled,  for  he 

254 


HANDLING  ABNORMAL  EXPENSE  255 

finds  that  his  products  turned  out  in  June  cost  him  say  $114  each, 
in  July  perhaps  $121  and  in  August  $117.  How  is  he  to  price 
out  a  product  sold,  say,  in  September?  He  may  not  be  able  to 
tell  by  then  in  which  month  the  particular  one  he  is  selling 
was  made.  Yet  the  average  man,  who  believes  the  figures  his 
cost  system  gives  him  usually  feels  that  to  be  consistent  he  should 
base  his  selling  price  on  his  actual  costs. 

This  shortcoming  of  cost  systems  led  us  12  or  more  years  ago,  to 
search  for  a  solution.  The  "normal  and  abnormal  cost"  plan 
which  has  since  been  quite  generally  adopted  by  competent  cost 
men,  is  the  result. 

It  does  several  things  for  the  manufacturer.  First  it  gives 
him  a  standard  cost  which  is  the  cost  of  the  product  when  the 
plant  is  normally  active.  This  does  away  with  the  bother  of 
considering  the  day  to  day  fluctuations  in  actual  cost.  Second, 
it  enables  him  to  go  after  needed  new  business  intelligently  at  a 
price  which  will  get  the  business,  and  at  the  same  time  bring 
back  a  certain  known  part  of  the  actual  cost.  Third,  it  does  not 
penalize  the  factory  for  high  cost  of  production  which  is  really 
due  to  business  conditions  or  poor  selling.  Fourth,  it  sets  up  a 
budget  figure  not  only  for  each  department  of  the  plant  but 
for  each  item  that  makes  up  the  overhead  of  each  department. 
This  gives  the  executive  a  quick  control  when  the  actual  expendi- 
ture for  an  item  overruns  the  budget  or  normal  figure,  and  it 
shows  him  just  where  expenses  may  safely  be  cut  when  business 
falls  off. 

What  Is  Normal  Activity. — Let  us  see,  in  detail,  how  normal 
expenses  are  arrived  at  and  used.  The  first  step  is  to  determine 
the  normal  activity  of  the  plant.  Presuming  that  the  shop  has 
been  put  in  balance,  as  described  in  Chap.  VI,  when  we  were 
considering  the  planning  of  production,  it  is  apparent  that  for 
one  shift  operation  the  maximum  is  100  per  cent  of  the  machine 
capacity.  Actually  we  find  that  this  is  seldom  attained,  for 
the  sales  force  does  not  always  make  enough  sales;  production 
planning  may  not  be  perfected;  machines  will  break  down  and 
men  will  sometimes  lay  off.  Research  shows  that  80  per  cent  of 
capacity  is  a  fairly  high  normal  activity  for  machine  shops.  Of 
course,  if  the  plant  operates  two  shifts  of  equal  length  we  have  a 
possible  capacity  of  200  per  cent  when  we  speak — as  is  custom- 
ary— in  terms  of  a  single  shift. 

If  a  plant  is  unbalanced,  one  or  more  departments  may  regu- 


256      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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258      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

larly  work  overtime.  One  such,  for  instance,  operated  10 
hours  a  day  except  one  department  which  regularly  worked  6 
hours  overtime.  This  department's  capacity  was  thus  160  per 
cent  of  a  single  shift  and  its  normal  activity  was  80  per  cent  of 
160  or  128  per  cent. 

In  this  way  we  determine  for  each  department  its  normal 
activity  expressed  in  productive  hours  whether  of  machines  or 
men. 

Arriving  at  Normal  Expense. — Next,  we  must  develop  a  dollars 
and  cents'  figure  for  the  normal  expense  of  each  department. 
This  is  based  on  the  history  of  actual  expense  for  a  period  of 
normal  activity  if  it  is  available.  If,  however,  such  a  history 
is  not  to  be  had,  it  is  possible  to  build  up  accurate  normals. 
Since  a  description  of  this  method  will  cover  all  problems  which 
can  be  encountered  we  will  consider  that  we  are  developing 
normal  figures  for  a  shop  during  a  seasonal  slump. 

The  expense  analyses  for  this  shop  have  been  developing  the 
actual  items  of  expense  for  2  or  3  months.  The  figures  came 
from  the  sources  of  original  entry  and  we  have  described  how 
they  are  carried  forward  through  the  contributory  departments 
into  the  productive  departments. 

In  setting  normals  we  therefore  examine  each  actual  item  on  all 
of  the  expense  analyses  and,  in  the  light  of  our  knowledge  of 
the  shop  and  its  problems,  we  determine  what  would  be  a  reason- 
able amount  for  each  item  to  be  at  normal — that  is  80  per  cent 
capacity — production . 

Take  the  general  department.  The  first  item  shown  in  Fig. 
94  is  superintendent's  salary,  $225.  The  superintendent  is  a 
key  man  who  will  not  be  dropped  and  his  salary  will  not  fluctuate 
with  the  shop's  activity.  As  we  do  not  comtemplate  changing 
his  salary  at  present,  the  actual  figure  becomes  the  normal.  The 
same  conditions  apply  to  the  watchman  whom  we  must  keep 
on  the  payroll  whether  the  plant  is  on  full  time  or  shut  down. 

Items  That  Fluctuate. — But  the  next  item,  " timekeepers," 
is  controllable  Under  normal  conditions  two  timekeepers  are 
needed,  but  as  production  for  the  period  we  are  reviewing  was 
slack,  but  one  time  keeper  was  needed.  Our  budget  for  normal 
operation  however,  must  provide  for  two,  so  we  put  our  normal 
figure  at  double  the  actual  as  shown  for  this  month.  Miscellane- 
ous non-productive  labor  fluctuates  almost  directly  with  the 
activity,  and  we  know  that  when  normal  conditions  come  again, 


HANDLING  ABNORMAL  EXPENSE  259 

this  item  will  go  up.  We  estimate  that  $695  will  be  the  expense 
for  non-productive  labor  normally.  The  normal  or  budget  figure 
for  clerks  is  arrived  at  in  the  same  way. 

As  we  have  already  seen,  some  of  the  overhead  items  do  not 
vary  with  the  activity  of  the  shop.  An  example  is  window  clean- 
ing. For  such  items  the  normal  and  actual  are  the  same.  Other 
items  fluctuate  more  or  less  directly  with  the  shop  activity. 
For  the  month  in  question  there  were,  for  example,  no  tool 
repairs  requisitioned,  but  month  in  and  month  out  we  find  that 
this  item  amounts  to  about  $50  a  month,  so  that  figure  is  decided 
upon  as  normal. 

The  amount  of  power  used  will  vary  with  production,  but  the 
share  of  fixed  charges  will  not. 

In  setting  up  the  normal  expense  for  the  toolroom,  we  are 
again  confronted  with  the  situation  of  the  toolroom  bearing  a 
charge  from  the  general  factory,  and  also  with  the  toolroom  giving 
a  charge  to  the  general  factory.  To  overcome  this  difficulty, 
a  fixed  figure  is  used  on  the  toolroom  for  the  general  factory 
amounting  to  $305.47,  and,  in  making  the  distribution  of  the 
general  factory  expense,  after  the  total  normal  expense  has  been 
determined,  the  amount  that  we  have  charged  to  the  toolroom 
is  deducted  before  making  our  distribution  to  the  other  depart- 
ments. The  amount  is  not  used  in  calculating  the  percentages 
which  we  used  for  purposes  of  distribution  to  the  departments  of 
the  general  factory  charge. 

After  the  normal  figures  for  a  department  are  settled  upon, 
they  are  totaled  and  distributed  to  the  productive  departments 
in  exactly  the  same  way  as  are  the  actual  figures. 

Developing  Standard  Rates. — The  normal  or  standard  rates 
of  expense  for  the  productive  departments  are  developed  as 
they  were  for  the  contributory  departments.  The  total  normal 
expense  for  a  productive  department  is  divided  to  give  a  normal 
rate  per  hour  by  using  the  standard  expense  and  the  standard 
hours.  If  a  department's  expense  is  applied  as  a  percentage 
of  expense  to  labor  rather  than  on  the  hourly  basis,  that  figure 
is  developed  by  estimating  the  total  wages  that  will  be  normally 
paid  in  that  department. 

This  standard  or  normal  expense  rate  is  the  figure  used  in 
costing  the  product.  This  gives  an  apparent  discrepancy 
between  the  expense  which  has  actually  been  incurred  and  the 
standard  expense.  The  difference  must  be  taken  care  of  in  the 
accounting.  It  is  easily  and  accurately  done. 


260      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

There  are  two  ways  in  which  this  adjustment  can  be  made. 
You  may  recall  that  during  the  month  we  put  into  the  "  goods 
finished  and  in  process"  account  of  the  ledger,  the  productive 
labor  that  was  actually  expended  during  the  month.  We  also 
charged  to  this  account  the  materials  drawn  from  the  different 
inventory  accounts,  and  the  total  manufacturing  expense. 

This  account  is  thus  charged  with  the  actual  cost  of  the 
finished  goods  on  hand,  and  of  the  unfinished  goods  in  process 
which  are  scattered  throughout  the  plant.  This  actual  cost  may 
be  high  or  low,  depending  upon  the  activity  of  the  plant  for  the 
past  few  months. 

While  we  have  here  the  total  actual  cost  of  a  large  number  of 
different  parts  in  different  stages  of  completion  lumped  together, 
it  is  apparent  how  nearly  impossible  it  would  be  to  determine  the 
actual  cost  of  any  given  part,  for  they  started  at  different  times 
and  went  through  under  varying  conditions  of  shop  activity. 

Also  these  parts,  as  they  are  sold  one  by  one,  must  be  credited 
to  the  goods  finished  and  in  process  account  at  cost.  We  can 
in  the  end  take  out  of  this  account  no  less  or  no  greater  amount 
than  has  been  put  into  it. 

Here  is  where  the  standard  cost  is  of  great  advantage,  for  it 
saves  useless  hair-splitting  and  clerical  labor,  while  giving  at  the 
same  time  complete  accuracy.  For  we  credit  the  goods  finished 
and  in  process  account  with  the  normal  cost  of  those  articles 
which  have  been  sold. 

Suppose  that  during  one  month  the  actual  overhead  expense 
for  the  planer  department  had  been  at  the  rate  of  $1.05  per 
machine  hour,  or  $2,100.  This  sum  has  been  charged  to  the 
goods  finished  and  in  process  account  as  described  in  previous 
articles.  Suppose  that  normally  the  expense  of  this  department 
is  $2,200,  or  at  the  rate  of  $1.10  per  machine  hour.  This  is  the 
rate  at  which  goods  sold  must  carry  the  overhead  absorbed 
by  them  as  they  go  through  the  planer  department.  If  we 
credit  " goods  finished  and  in  process"  with  the  cost  of  goods 
sold  at  the  normal  rate,  it  would  result  in  taking  $100  more  out 
of  the  account  than  was  put  into  it.  No  conceivable  activity 
of  this  account  can  result  in  a  profit  to  it;  yet  a  profit  shows  up 
here.  It  is  due  to  the  increased  activity  of  the  planer  department. 

An  Adjustment. — Whereupon  we  make  an  adjustment  between 
the  " goods  finished  and  in  process"  account  and  an  account 
called  " profit  and  loss  due  to  abnormal  expense"  to  take  care 


HANDLING  ABNORMAL  EXPENSE 


261 


of  the  $100  discrepancy.  The  result  is  to  add  $100  to  the  goods 
finished  and  in  process  account.  It  is  done  by  the  medium  of  a 
journal  entry,  charge  " goods  in  process"  $100  and  debit  " profit 
and  loss  due  to  abnormal  expense."  If  the  shop  had  operated 
below  normal  so  that  the  actual  machine  hour  rate  had  been 
$1.15,  the  journal  entry  would  read,  credit  " goods  in  process" 
and  debit  "  profit  and  loss  due  to  abnormal  expense." 

Some  cost  engineers  and  managers  prefer  to  make  the  adjust- 
ment directly  between  the  manufacturing  expense  account  and 


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the  profit  and  loss  account.  These  is  little  to  choose  between 
the  two  methods.  If  the  latter  is  done  we  credit  the  manufac- 
turing expense  account  with  the  amount  of  the  normal  expense 
as  it  is  developed  for  the  month,  and  charge  this  amount  to  the 
goods  finished  and  in  process.  The  difference  that  now  exists, 
either  debit  or  credit,  in  the  manufacturing  expense  account  is 
charged  or  credited  as  the  case  may  be,  to  "profit  and  loss  due  to 
abnormal  expense."  In  this  way,  " goods  finished  and  in  proc- 
ess" are  kept  at  a  normal  base  of  expense.  When  goods  finished 
and  in  process  are  relieved  by  the  cost  of  sales  figures  at  standard 
rate  of  expense,  there  will  be  no  discrepancy  in  the  goods  finished 
and  in  process  account. 

If  after  a  period  of  several  months,  there  is  found  a  persistent 
discrepancy  in  the  same  direction  between  actual  and  normal 
rates,  it  is  advisable  to  set  up  new  normals.  When  the  normal 
method  is  first  started  it  frequently  OQQUrs  that  incorrect  normals 


262      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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264      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

have  been  set  up,  due  to  insufficient  information  to  go  on.  Or 
conditions  in  the  plant  may  change  to  a  degree.  In  a  period 
of  rapidly  rising  wages  and  salaries  it  may  be  found  that  the 
actual  expense  persists  above  the  normal.  That  condition  might 
require  that  the  normals  be  frequently  and  carefully  revised. 

Distributing  Idle  Machine  Time. — In  Fig.  95  is  shown  the 
building  up  of  the  adjusting  entry  for  the  difference  between 
the  expense  actually  incurred  and  the  expense  as  figured  at  the 
normal  rate  on  which  we  base  the  cost.  It  gives  the  executive 
at  a  glance,  those  departments  which  have  run  over  or  under  the 
pre-determined  rate  of  expense  and  by  a  reference  to  the  expense 
analysis  because  of  this  shortcoming,  can  easily  be  determined. 

The  normal  method  of  handling  expense  solves  automatically 
the  much  mooted  question  as  to  how  idle  machine  time  is  to 
be  distributed.  It  has  always  seemed  unfair  to  have  any  particu- 
lar piece  absorb  a  large  amount  of  accumulated  expense  due  to 
lack  of  use  for  the  tool  on  which  it  is  made.  Certain  charges 
run  on  whether  the  tool  is  busy  or  not.  Neither  is  it  fair  to 
make  the  shop  as  a  whole  take  care  of  this  cost,  loading  the  cost 
for  the  idle  time  onto  pieces  which  are  in  no  way  connected  with 
the  idle  machine.  The  lost  time  on  a  machine  is  a  straight 
business  loss.  Handling  it  in  this  way  sets  the  figures  up  so 
that  the  executive  may  see  at  a  glance  any  deviation  from  the 
standard  rate.  By  referring  to  the  expense  analysis  he  can  see 
whether  it  is  due  to  low  machine  activity  or  to  increased  expense. 
The  cost  figures  throw  up  their  own  warning.  The  expense 
analysis  provides  an  easy  and  quick  means  by  which  to  ascertain 
the  cause  of  the  fluctuation. 

In  a  few  unusual  shops  it  may  be  desirable  to  set  up  standards 
or  normal  costs  for  labor  and  material  as  well  as  for  expense.  The 
method  of  handling  would  be  the  same  in  principle. 

How  Should  Inventory  Be  Adjusted? — Some  accountants 
object  to  adjusting  the  inventory  and  the  profit  and  loss  monthly. 
They  say  it  is  incorrect  to  take  a  profit  or  a  loss  before  a  sale  is 
made.  Our  thought  is  that  the  main  object  is  not  to  effect  the 
profit  and  loss,  but  to  normalize  and  hold  the  goods  in  process 
figure  at  a  common  or  normal  figure,  at  the  same  time  absorbing 
the  losses  on  materials  as  the  materials  are  used.  If,  by  good 
management,  the  cost  of  labor,  materials  or  expense  is  less  than 
normal,  the  profit  is  obviously  a  profit  to  the  month  in  which  the 
transaction  occurs. 


HANDLING  ABNORMAL  EXPENSE  265 

The  normal  or  standard  figure  that  is  set  for  each  item  of 
expense  on  the  expense  analysis  is  in  effect  a  budget.  The 
executive  who  watches  the  expense  analysis  to  see  that  the 
actual  expenditures  do  not  exceed  this  figure  has  an  effective 
control  by  which  to  keep  overhead  from  running  away  with 
profits.  After  an  estimate  has  been  made,  it  is  important  to 
make  sure  that  the  actual  items  of  expense  do  not  exceed  the 
figures  on  which  the  estimate  was  based.  It  is  more  important 
to  know,  for  instance,  that  machine  repairs  in  the  automatic 
department  are  costing  $100  a  month  more  than  we  estimated 
they  should  cost,  than  to  know  that  some  minor  part  is  costing  2 
cents  more  than  we  figured  on  our  estimate. 

In  this  chapter  are  shown  the  expense  analyses,  Fig.  94, 
complete,  with  normal  and  actual  figures,  just  as  they  go  to  the 
executive  who  has  a  fully  functioning  cost  system.  We  also 
show  the  ledger  accounts,  Fig.  96,  adjusted  to  take  care  of  the 
profits  and  losses  due  to  abnormal  expense.  It  will  be  noticed 
that  these  ledger  accounts  as  previously  shown  carried  no  balances 
from  previous  inventories.  They  were  purposely  omitted  to 
avoid  possible  confusion  in  tracing  the  later  entries.  From  now 
on  we  have  to  take  these  balances  into  account,  so  we  have 
interpolated  them. 

When  a  cost  system  shows  only  that  a  part  is  costing  more 
than  the  estimate,  it  is  simply  bringing  us  bad  news.  With 
normal  and  actual  figures  for  expense  side  by  side,  we  may  still 
get  the  bad  news,  but  we  are  shown  where  to  go  to  stop  the  loss. 


CHAPTER  XXIII 
GATHERING  THE  FINAL  COSTS 

Manufacturers  commonly  look  toward  a  figure  representing 
the  total  cost  of  their  product  as  the  goal  of  cost  finding.  We 
have  tried  to  make  clear  that  nowadays  that  figure  is  compara- 
tively unimportant,  that  it  is  purely  historical,  of  some  value  in 
estimating  future  work,  no  doubt,  but  secondary  to  other  ends 
which  the  cost  system  can  be  made  to  serve. 

It  is  of  little  present  value  for  the  manufacturer  to  know  when 
a  job  is  done  that  it  has  cost  him  $4,190.27-3/7  as  against  the 
selling  price  of  $4,000  which  he  quoted.  It  is  much  more  impor- 
tant for  him  to  know  as  work  progresses  that  the  cost  is  running 
too  high,  and  why.  That  gives  him  control  of  the  manufacturing 
operations  in  time  to  remedy  inefficient  methods,  so  that  the 
final  cost  figure  will  be  a  pleasant  one. 

Final  Costs. — From  the  start,  we  have  been  working  toward 
the  final  cost  figure;  accumulating  the  amount  of  labor  and  mate- 
rial going  into  each  part;  building  up  the  overhead  expense,  and 
devising  a  method  by  which  the  expense  can  be  charged  into 
each  item  of  the  product  in  the  proper  amount;  and  tying  the 
cost  figures  into  the  general  books  so  that  there  will  be  numerous 
checks  on  the  accuracy  of  the  costs.  The  methods  for  accom- 
plishing these  results  have  been  so  chosen  as  to  give  a  constant 
and  close  control  of  manufacturing  and  to  notify  the  executive 
if  his  costs  are  running  too  high. 

Specifically,  we  have  now  developed  figures  to  show:  (1)  The 
material  chargeable  to  each  part ;  (2)  The  direct  labor  chargeable 
to  each  part;  (3)  The  proportion  of  overhead  to  be  charged. 

In  order  to  determine  the  total  or  final  cost  of  a  part,  we  have 
only  to  gather  these  figures.  The  labor  has  been  recorded  on 
the  service  cards;  the  material  on  the  requisitions;  and  the 
normal  expense  rates  have  been  developed  and  deviations  from 
them  shown  on  the  expense  analysis. 

Gathering  Direct  Labor. — The  direct  labor  cost  may  be 
gathered  (1)  by  operation,  or  (2)  by  departments.  The  first 
method  is  preferable  as  it  gives  closer  control,  and  shows  more 

266 


GATHERING  FINAL  COST 


267 


accurately  the  shop  efficiency.  Exceedingly  inefficient  manu- 
facturing may  be  buried  from  sight  indefinitely  if  the  direct 
labor  for  an  entire  department  is  reported.  For  example,  the 
departmental  labor  may  be  less  than  expected — thus  making 
the  executive  feel  falsely  secure — although  this  result  may  be 
produced,  not  by  skillful  management  of  the  whole  department, 
but  by  having  an  extremely  dexterous  workman  on  one  operation 
whose  low  labor  cost  more  than  offsets  the  high  cost  of  a  poor 
workman  in  the  same  department.  If  the  labor  is  reported  by 


ORDER  No.  S007         JOB   ORDER   COST  CARD 
D«.O«,PT,ON  O^WO«K     te&otr     Old 


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Relieve.,  by  Order  No 
Invoice  No. 


FIG.  97. — Job  order  cost  card. 

operations,  the  true  conditions  become  at  once  apparent  and 
steps  can  be  taken  to  correct  the  inefficiency.  This  is  another 
instance  where  good  judgment  must  determine  the  degree  of 
detail  with  which  costs  are  gathered.  In  some  phases  of  cost 
finding,  it  is  possible  to  spend  a  great  deal  of  money  going  into 
detail  which  brings  no  return.  In  this  case,  however,  the  work 
involved  in  getting  labor  costs  by  operations  rather  than  in  bulk 
by  departments,  is  well  worth  while  for  it  will  frequently  show 
that  losses  are  going  on  which  if  allowed  to  continue  might 
easily  run  into  thousands  of  dollars. 

In  an  earlier  chapter  we  mentioned  that  the  productive  service 
cards,  when  an  operation  is  completed,  are  sent  to  the  central 
cost  department.  Here  they  are  priced  and  sorted,  first  to 
part  number  and  then  to  operation  number,  and  are  so  filed 
until  the  end  of  the  month.  In  this  file,  there  is  a  card  for  each 
operation  on  each  part,  with  a  master  card  set  up  either  by  part 
or  order  number. 


268      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


Should   Costs   Be   Gathered  by  Parts  or  Orders?— Here  it 

becomes  necessary  to  decide  for  each  shop  whether  the  costs  shall 
be  gathered  by  parts  or  by  orders.  If  the  shop  is  largely  on  job 
work,  where  a  given  part  may  go  through  only  a  few  times  in  a 
year,  it  is  ordinarily  best  to  gather  costs  by  orders;  that  is,  by 
jobs.  It  is  only  in  the  repetitive  shop  where  certain  parts  are 
made  in  considerable  quantities,  that  good  use  can  be  made  of 
part  costs  by  operations.  On  repetitive  work,  the  cost  man  can 
watch  his  costs  month  by  month,  and  if  the  time  taken  per 
piece,  or  the  average  cost,  rises  above  the  normal  the  cost  man 
can  start  an  investigation  into  the  reason  for  the  inefficiency. 


OPERATION  NAME.. 

OPCR.ATION     CO5T 
Plane.  Flange.                                PART  NO.  JJZ3 
-on.                                                                    OPEH.  NO.     / 

MATERIAL-.    CaA-f  It 

g 

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Cost 

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Off 

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/>w 

Dvf. 

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PW 

aw. 

Total 

PW. 

QW. 

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z 

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So 

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.J 

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2.00 

z 

3507 

H 

Feb. 

far- 

Apr. 

May 

Jbnd 

fob, 

Ay 

5^C 

Ocf. 

toy. 

Dec. 

FIG.  98. — Operation  cost  card. 

If  costs  are  .to  be  gathered  by  orders,  a  form  similar  to  that 
shown  in  Fig.  97  may  be  used;  if  by  operations,  the  form  shown 
in  Fig.  98  is  recommended. 

At  the  end  of  the  month,  the  service  cards  for  each  operation 
on  each  part  are  totaled  and  the  results  posted  to  whichever  of 
these  two  forms  it  is  decided  to  use.  From  these  cards  it  is 
easy  to  calculate  the  average  labor  cost  per  piece  for  that  opera- 
tion for  the  month. 

It  is  now  possible  to  check  again  the  accuracy  of  the  costs. 
This  is  done  by  totaling  the  productive  labor  posted  to  the  cards, 
shown  in  Fig.  97  or  Fig.  98  during  the  month.  This  total  should 
be  the  same  as  the  amount  of  productive  labor  which  has  been 
transferred  from  the  payroll  account  to  the  goods  in  process 
account. 


GATHERING  FINAL  COST 


269 


The  service  cards  from  the  toolroom  are  kept  in  a  separate 
file  arranged  according  to  the  departments  which  have  used  the 
toolroom  service.  It  is  from  this  record  that  we  secure  the 
distribution  of  the  toolroom  labor  charge. 


H 


The  Parts  Cost  Card. — A  glance  at  the  cards  shown  in  Figs. 
97  and  98  will  show  that  we  have  entered  not  only  the  labor 
cost,  but  the  number  of  machine  hours  required  by  the  piece. 
This  is  needed  for  the  next  step,  which  consists  of  gathering  the 
three  elements  of  cost  on  the  parts  cost  card,  Fig.  99  as  set  up  for 


270      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


each  month.  To  this  card  we  post,  under  the  correct  depart- 
ments, the  labor  cost  per  piece  and  the  machine  hours  used  per 
piece.  The  total  of  the  labor  charges  for  all  departments  gives 


FIG.  100. — Parts  order  cost  card  for  use  in  a  jobbing  shop. 


Account  No.  60 
Stock  and  Cost  Record 


Part  No._ 


Part  Name  L..H.  Side. 


Materml    Co>3T  /for) 


QUANTITIES    USED 


SSL   Sis?    ft£ 


TOD. 


S-13i 


FIG.   101. — Special  inventory  card  for  charging  out  finished  parts. 

the  labor  cost  for  a  single  piece.  We  determine  the  charge 
for  expense  by  totaling  the  machine  hours  shown  for  each  depart- 
ment and  extending  them  by  the  standard  hour  rate  for  its 
department.  The  next  step  is  to  determine  the  total  value  of 
the  material  which  has  been  requisitioned  for  this  part  during 


GATHERING  FINAL  COST 


271 


the  month,  and  dividing  the  total  by  the  number  of  parts  requi- 
sitioned. This  gives  an  average  price  per  piece  for  material. 
In  the  lower  right-hand  corner  of  the  parts  cost  card,  the  cost  of 


888 


93$ 


SS 


•II 


pi 
m 


a; 


99 


S*§CB 


labor,  expense  and  material  per  part  is  shown  and  the  total  cost, 
in  this  case,  $25.8309  is  arrived  at  as  the  total  cost  for  a  single 
piece.  Multiplying  this  figure  by  the  number  of  parts  finished, 
which  is  20,  we  get  a  cost  for  the  total  number  of  these  parts 
which  have  been  finished  during  the  month,  of  $516,618. 


272     PRODUCTION  ENGINEERING  AND  COST  KEEPING 

This  method  of  gathering  parts  costs  is  best  adapted  to  shops 
which  are  producing  the  same  parts  over  and  over,  and  where, 
therefore,  it  is  important  to  develop  the  unit  cost  and  from  that 
find  the  total  cost  for  all  parts  made  in  a  month. 

The  form  shown  in  Fig.  100  can  be  used  to  somewhat  better 
advantage  in  shops  which  operate  more  along  jobbing  lines. 
Here  it  is  important  to  know  the  total  cost  of  all  of  one  kind  of 
part  made  on  an  order,  rather  than  the  unit  cost.  Therefore  on 
this  card  we  gather  the  cost  of  all  of  the  parts  of  a  single  kind 
made  on  one  order,  and  if  wanted,  divide  this  total  by  the  number 
made  to  get  the  unit  cost. 

In  Chap.  XX  we  described  the  method  of  charging  out  material 
on  the  ''exhaustion  of  lot"  basis.  The  same  method  is  used  in 
charging  out  finished  parts,  as  they  are  needed  for  assembly, 
into  the  completed  product.  To  simplify  charging  out  on  this 
basis,  a  special  form  of  inventory  card,  similar  to  that  shown  in 
Fig.  101  is  needed.  On  this  card  is  shown  the  month,  the  order 
number,  quantity  made  during  the  month,  the  labor,  material 
and  expense  per  piece  on  that  order,  and  the  total  money  value. 
Provision  is  made  to  show  the  amount  withdrawn  from  stock  and 
a  balance  figure  to  show  how  many  pieces  are  still  left  in  stock. 
This  makes  it  simple  to  charge  out  the  finished  parts  at  their 
correct  price.  In  the  jobbing  shop  it  is  not  likely  that  finished 
parts  will  be  carried  in  stock.  The  form  shown  in  Fig.  101  is 
therefore  dispensed  with  and  the  parts  order  cost  card,  shown  in 
Fig.  100  is  used  for  the  same  purpose. 

Building  up  Final  Assembly  Costs. — We  are  now  ready  to 
build  up  the  final  assembly  costs.  Rather  than  multiply  the 
number  of  forms  needed  for  conducting  a  company's  business, 
we  prefer  to  use  a  single  form  for  several  purposes  when  that  is 
possible.  For  example,  in  building  up  the  assembly  costs,  we 
use  a  copy  of  the  parts  list,  which  has  its  original  use  in  the  plan- 
ning of  production.  The  form  was  shown  and  described  in 
Chap.  IV.  In  order  to  illustrate  its  use  in  cost-finding,  it  is 
reproduced  herewith  in  Fig.  102  with  the  proper  cost  figures 
entered  thereon. 

The  four  columns  which  were  in  black  in  the  original  parts 
list  appear  in  white  after  the  form  has  been  photographed. 
These  columns  are  headed  " labor,"  " material,"  " expense" 
and  "total."  The  items  of  cost  are  entered  in  these  four  columns 
from  the  finished  parts  inventory  card  or  the  parts  order  cost 


GATHERING  FINAL  COST 


273 


card,  extended  by  the  number  of  parts  that  are  required  in  the 
assembly.  The  totals  of  each  of  these  columns  will  give  the 
material,  labor  and  expense  cost  for  all  of  the  parts  in. the  assem- 
bly, but  do  not  include  the  cost  of  assembling  them.  However, 
we  have  in  the  cost  department  a  parts  operation  card  for  the 


FIG.   103. — Ledger  accounts  with  sales  entries  recorded. 

assembling  operation,  showing  the  labor  and  expense.  Adding 
this  to  the  total  cost  of  the  parts,  gives  the  total  manufacturing 
cost  of  an  assembly. 

To  this  can  be  added  the  proper  percentage  of  selling  expense, 
thus  getting  the  total  cost  of  the  assembly  sold.  Usually, 
however,  the  selling  expense  is  not  so  simple  a  matter.  The 
more  approved  methods  of  building  it  up  will  be  treated  at  greater 
length  in  the  next  chapter. 

The  next  step  is  to  apply  these  manufacturing  costs  to  the 
sales  which  have  been  made  during  the  month,  so  that  we  may 

18 


274      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

later  develop  the  manufacturing  profit  and  loss  statement. 
The  cost  department  is  furnished  with  a  copy  of  each  invoice 
for  goods  sold,  showing  the  order  number  and  type  of  assembly. 
By  referring  to  the  files  of  completed  costs,  the  cost  department 
allocates  to  each  invoice  the  manufacturing  costs  of  the  items 
covered  by  it. 

The  Profit  and  Loss  Statement. — If  it  is  desired  to  know  the 
profit  and  loss  by  lines,  the  invoices  are  sorted  into  classes  of 
product  and  their  sales  price  and  cost  totaled.  The  difference 
between  the  two  amounts,  as  shown  by  the  invoices,  is  the  manu- 
facturing profit  or  loss. 

The  following  journal  entries  are  needed  in  order  to  carry  the 
cost  of  sales  for  the  month  and  the  value  of  sales  for  the  month 
to  the  ledger. 

JOURNAL  ENTRIES 

DR.  CR. 

Accounts  receivable $350 , 197 . 50  

Sales $350,197.50 

Cost  of  sales 229, 171 .30 

Goods  finished  and  in  process 229 , 171 . 30 

In  Fig.  103  are  shown  the  ledger  accounts  as  they  appear 
when  these  entries  have  been  made.  As  in  previous  chapters 
this  step  has  been  taken  to  show  the  appearance  of  the  books  at 
this  point  in  the  work. 


CHAPTER  XXIV 

THE  STATEMENT  OF  CONDITION  AND  THE  OPERATING 

STATEMENT 

Under  the  old  methods  of  accounting — which  are  still  far  too 
commonly  used — the  owner  of  a  business  could  not  know  how 
successfully  he  was  operating  without  " closing  the  books;" 
and  " closing  the  books"  was  too  formidable  an  adventure,  both 
physically  and  mentally,  to  undertake  more  often  than  once  a 
year.  In  the  meantime,  the  business  went  on  hopeful  but 
fearful  of  what  the  findings  would  be  when  the  books  were 
finally  closed  and  the  history  of  the  year's  operations  written. 

It  would  be  interesting  to  describe  the  cumbersome,  laborious 
process  of  closing  the  books — for  the  sake  of  ridiculing  those  old 
fashioned  methods  which  gave  such  meagre  information.  But 
those  who  have  been  through  the  process  are  not  apt  to  forget  it. 

Checking  up  on  Profit  and  Loss. — Now  that  the  way  to  tie 
cost  accounting  into  the  general  accounts  of  a  business  has  been 
discovered,  it  is  possible  to  determine  the  condition  of  a  business 
frequently  and  easily.  In  fact,  the  manufacturer  can,  if  he  wants, 
get  statements  weekly  or  daily  without  great  effort.  But  they 
are  seldom  needed  so  often.  Once  a  month  is,  however,  not  too 
frequent  for  an  owner  or  his  executives  to  check  up  on  the  activi- 
ties of  a  business.  The  oftener  you  can  check  up,  the  less  likely 
you  are  to  let  a  loss  run  on.  Too  frequent  statements,  on  the 
other  hand,  are  likely  to  lack  perspective. 

This  monthly  checking  up  is  done  by  means  of  two  statements, 
the  statement  of  condition  and  the  statement  of  operations. 
The  statement  of  condition  is  a  form  in  which  the  assets  and 
liabilities  of  the  enterprise  are  listed,  usually  in  parallel  columns, 
in  that  way  disclosing  the  net  worth  of  the  business.  Since 
both  sides  of  the  account  balance,  the  statement  is  often  referred 
to  as  a  balance  sheet.  The  " statement  of  condition"  more 
accurately  discloses  the  purpose,  which  is  to  answer  the  question, 
"Where  do  I  stand?"  The  statement  of  operations  in  its  turn 
answers  the  question  "How  did  I  make  my  profit  or  my  loss?" 

The  statement  of  condition  is  in  common  use,  but  it  discloses 

275 


276      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


the  net  result  of  the  operations  for  the  period  in  bulk  only.  It 
is  superior,  but  only  to  a  degree,  to  the  method  still  used  by  some 
quite  successful  business  men,  who  every  so  often  attempt  to 

TRIAL  BALANCE 
as  of  Jan.  31,  1921 


Dr. 

Cr. 

Reserve  for  depreciation  of  buildings  .... 

$         1  319  47 

Materials  purchased  finished  

$       25,232  02 

Lumber  and  packing  materials  
Insurance  accrued  —  machinery 

923.80 

112  50 

Taxes  accrued 

183  33 

Prepaid  insurance  —  buildings  
Forgings  and  castings 

1,387.80 
54,274  62 

General  stores 

o  126  30 

Selling  expense 

1  898  45 

Goods  finished  and  in  process  
Buildings                            .      .        .... 

26,520.33 
452,629  11 

Bar  stock     

27,341.13 

Hardening  and  carbonizing  materials.  .  . 
Fuel 

4,300.56 
5  371  29 

Reserve  for  depreciation  of  machinery  .  . 

3,711  17 

Machinery               

372,624  64 

Accounts  payable 

308  214  18 

Iron  and  steel  

25,137.47 

Cash      

79,204  71 

Accounts  receivable  
Real  estate 

625,326.50 

50  000  00 

Surplus  
Capital  stock  
Profit  and  loss  due  to  abnormal  expense  . 
Sales 

2,234.34 

325,966.52 
1,000.000.00 

350  197  20 

Cost  of  sales  

229,171.30 

$1,989,704.37 

$1,989,704.37 

FIG.  104. — Trial  Balance  Sheet. 

collect  all  the  money  due  them,  pay  all  their  bills  and  consider 
that  their  bank  balance  plus  their  stock  of  goods  on  hand  is 
their  capital  and  the  amount  of  that  capital  in  excess  of  the  capital 
of  some  other  date  is  the  profit  made  in  the  interval  which  has 
elapsed.  The  statement  of  condition  gives  no  inkling  as  to 
where  or  why  profits  were  made  or  failed  to  be  made.  The 
statement  of  operations,  however,  dissects  the  profit  for  the 
period  and  indicates  where  policies  could  profitably  be  changed. 


CONDITIONS  AND  OPERATING  STATEMENTS  277 

The  statements  shown  in  this  chapter  are  comparative.  A 
single  figure  standing  alone  means  little.  Considered  in  connec- 
tion with  a  previous  figure,  it  achieves  a  real  meaning.  It  is 
only  in  comparing  the  figures  with  preceding  periods  and  perhaps 
with  the  same  period  of  another  year  that  accurate  deductions 
as  to  the  operation  of  the  business  can  be  made. 

Arriving  at  the  Statement  of  Condition. — Let  us  first  consider 
how  we  arrive  at  the  statement  of  condition.  The  first  step  is 
to  take  the  trial  balance  of  the  ledger  after  all  of  the  journal 
entries  mentioned  in  preceding  articles  have  been  made.  This 
trial  balance  which  is  shown  in  Fig.  104,  is  not  particularly 
significant  because  of  the  illogical  arrangement  of  the  items 
which  comes  from  following  the  order  of  the  ledger  accounts. 

Accountants,  bankers  and  credit  men  have  given  much  study 
to  the  form  which  the  statement  of  condition  shall  take.  The 
one  shown  in  Fig.  105  is  generally  accepted  as  the  clearest  and 
most  logical  arrangement.  We  therefore  rearrange  the  trial 
balance  figures  in  this  form. 

In  order  to  get  the  comparison  which  is  of  such  great  value, 
we  show  on  the  single  sheet  the  statement  of  condition  for  the 
current  month  and  for  the  preceding  month. 

Before  discussing  the  statement  of  condition  further  we  want 
again  to  forestall  comments  by  accountants  who  may  make  the 
startling  discovery  that  the  figures  shown  are  ridiculous  for  any 
business.  For  example,  they  might  point  out  that  this  concern 
did  not  collect  during  January  any  of  the  accounts  receivable 
which  were  on  the  books  Dec.  31 — admittedly  not  likely  even  in 
a  business  depression. 

There  are  several  other  figures  which  to  the  accountant  indicate 
that  the  business  is  poorly  run — almost  a  comic  opera  business 
in  fact.  There  are  also  many  items  of  assets  and  liabilities  which 
might  appear  but  do  not,  because  they  would  merely  add  compli- 
cations without  increasing  the  value  of  the  discussion.  The 
answer  is  that  no  attempt  has  been  made  in  any  of  these  articles 
to  give  figures  which  reflect  the  actual  transactions  of  a  real 
business.  The  aim  has  been,  not  to  record  all  of  the  possible 
accounting  entries,  but  to  give  only  enough  to  show  the  business 
man  how  figures  can  help  him.  No  ordinary  textbook  would  be 
large  enough  to  show  all  of  the  entries  that  might  arise. 

Therefore  we  have  kept  the  figures  and  transactions  as  simple 
as  possible,  and  have  been  content  to  show  clearly  how  the 


278      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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CONDITIONS  AND  OPERATING  STATEMENTS 


279 


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Sundry  liabilities  
Insurance  accrued  
Taxes  accrued  , 

Total  Liabilities  

Capital- 
Capital  stock  —  Outstanding. 
Surplus  (see  Statement  of  C 
tions)  , 
Reserve  for  Federal  incom< 
Excess  
ProfitsTaxes  

I 

TotoZ  Liabilities  and  Cap 

280      PRODUCTION  ENGINEERING  AND  COST  KEEPING 
STATEMENT  OF  OPERATIONS 


For  month  ended  Jan.  31, 
1921 


Sales 

Less  returns. 
Allowances . . 


Net  sales . . . 
Cost  of  goods  sold . 


Manufacturing  profit 

Less  adjustments  through  abnormals: 

Abnormal  manufacturing  expense 

Credit  abnormal  tool  room . . 


2,242.70 
8.36 


Net  manufacturing  profit 

Less  selling  expense 

Trading  profit — net  income  operations 
Other  income: 

Cash  discounts  taken 

Interest  received 

Miscellaneous.  . 


Total  other  income. 

Total  income 

Deductions  from  income: 
Cash  discounts  given. 

Interest  paid 

Miscellaneous.  . 


Total  deductions  from  income . 


Net  profit  from  operations 

Unallowable  deductions: 
Reserve  for  Federal  income  and  excess 
profits  taxes 


Balance,  transferred  to  surplus 

Surplus  beginning  of  the  period 

Deduct  dividends  paid 


$325,966.52 


Adjusted  surph 


Surplus  at  end  of  period 

(See  Statement  of  Condition) 


$350,197.20 


$350,197.20 
229,171.30 

$121,025.90 


$  2,234.34 

$118,791.56 

1,898.45 

116,893.11 


$116,893.11 


$116,893.11 


$116,893.11 


$325,966.52 
$442,859.63 


FIG.  106. — Statement  of  operation. 


CONDITIONS  AND  OPERATING  STATEMENTS          281 

activities  of  the  shop  are  reflected  in  the  books.  We  have 
carefully  traced  items  from  account  to  account;  but  have  not  tried 
to  make  the  size  of  the  entries  consistent  with  those  in  any 
real  business.  We  are  trying  to  make  cost  accounting  clear  to 
machine  shop  executives.  We  are  writing  for  business  men,  not 
for  accountants. 

Returning  to  the  statement  of  conditions;  you  see  that  in  the 
comparison  of  the  Jan.  31  figures  with  those  of  Dec.  31,  the 
increases  or  decreases  in  each  item  of  assets  and  liabilities  can 
be  easily  determined.  The  total  net  increase  or  decrease  in 
assets  and  liabilities  is  in  the  surplus  account  on  the  balance 
sheet.  This  increase  of  surplus,  $116,893.11,  which  is  the  month's 
profit,  is  the  balancing  figure.  It  is  arrived  at  also  by  means  of 
the  statement  of  operation  and  thus  serves  as  a  check  on  accuracy. 
It  is  shown  on  the  statement  of  operations  as  "net  profit  from 
operations"  for  the  month  ended  Jan.  31. 

The  Statement  of  Operations. — The  statement  of  operations 
as  shown  in  Fig.  106  is  built  up  for  the  period  to  date,  which  in 
the  case  of  this  hypothetical  business  is  for  the  month  of  January, 
the  first  month  of  the  period.  In  Fig.  107  a  supposititious 
statement  as  of  Feb.  28  is  shown.  On  this  the  operations  for 
the  full  period  to  Feb.  28  are  shown,  together  with  the  statement 
for  the  period  ending  the  preceding  month,  Jan.  31.  The  differ- 
ence between  the  two  sets  of  figures  gives  the  operating  results 
for  the  latest  month,  February. 

The  final  result  of  correct  additions  and  subtractions  will  be 
the  profit  and  loss,  first  by  totals  (2,  3  or  4  months  and  so  on) 
and  secondly  for  the  current  month.  It  is  in  this  way  that  the 
operating  statement  develops  the  profit  and  loss  independently 
of  the  statement  of  condition.  The  figure  thus  arrived  at,  added 
to  the  amount  of  surplus  at  the  beginning  of  the  month  or  period, 
less  any  current  month's  surplus  adjustments  gives  the  final 
surplus  which  is  the  balancing  or  proof  figure  on  the  balance 
sheet. 

How  Profit  Is  Made. — Thus  we  have  made  doubly  sure  that 
a  profit  has  been  made.  But  we  have  not  yet  learned  how  and 
why  it  was  made.  Perhaps  we  lost  money  on  more  than  half 
of  our  lines  of  product  and  made  a  disproportionate  profit  on 
the  rest.  To  get  a  close  view  of  the  business  adventure  we  must 
put  each  item  under  the  microscope.  This  we  do  by  analyzing 
the  statement  of  operations  to  show  the  result  of  operations  in 


282      PRODUCTION  ENGINEERING  AND  COST  KEEPING 


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CONDITIONS  AND  OPERATING  STATEMENTS  285 

/ 

each  product.  In  Fig.  108  we  show  a  statement  of  operations 
analyzed  by  lines  of  product. 

You  will  note  that  the  first  column  shows  the  gross  figures 
for  the  business  as  a  whole.  These  are  in  turn  subdivided  and 
carried  towards  the  right-hand  side  of  the  sheet  by  classification 
of  product.  The  total  of  the  sales  by  lines  must  check  with  the 
total  credit  for  the  month  that  has  been  posted  to  the  sales 
account  on  the  ledger.  Underneath  the  gross  sales  appears  the 
item  "less  returns  and  allowances."  For  simplicity  we  are 
not  showing  any  figures  for  this  deduction  for  the  current  month. 
After  making  this  deduction  the  result  is  the  net  sales  for  the 
month  or  period.  Many  manufacturers  prefer  to  keep  accounts 
for  their  many  subdivisions,  but  it  is  not  essential.  A  subsidiary 
record  can  be  maintained  which  will  give  this  information  at 
all  times.  The  best  accounting  practice  of  today  is  to  eliminate 
all  details  from  the  general  ledger.  The  general  ledger  is  a 
controlling  ledger  and  the  supporting  details  are  supposed  to  be 
carried  in  subsidiary  records. 

On  the  complete  operating  statement  shown  in  Fig.  107  is  an 
item  "cost  of  goods  sold,"  $229,171.30,  which  is  built  up  on 
the  detailed  statement  Fig.  108.  One  way  to  do  this  would  be 
to  take  an  inventory  of  all  materials  at  the  beginning  of  the  period 
and  add  all  purchases  of  labor,  material  and  expense  and  at  the 
end  of  the  period  deduct  the  inventory  of  all  materials  on  hand. 
The  difference  would  be  the  consumption  or  cost  of  goods  sold. 
This,  however,  would  require  taking  an  inventory  at  the  be- 
ginning and  end  of  the  period,  which  would  be  out  of  the  question 
for  most  concerns.  To  avoid  this  laborious  and  costly  detail, 
we  work  on  the  consumption  basis,  taking  into  consideration  the 
cost  of  labor,  material  and  expense  which  has  been  expended 
on  the  goods  actually  sold  and  shipped.  This  is  the  reason  for 
developing  the  "goods  finished  and  in  process"  account  with 
which  we  have  already  had  to  do.  This  intermediary  account  is 
charged  with  all  labor,  material  and  expense  consumed  in  pro- 
cessing and  is  credited  with  the  final  cost  of  the  goods  sold  and 
shipped.  Therefore,  we  build  up  the  cost  of  sales  in  exactly 
this  manner,  starting  first  with  the  amount  in  the  "goods  finished 
and  in  process"  account  at  the  beginning  of  the  month. 

This  next  step  is  to  show  in  detail  the  various  additions  that 
have  been  made  to  the  goods  finished  and  in  process  account. 
First  we  add  the  amounts  of  each  kind  of  material  that  has  been 


286      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

withdrawn  from  the  raw  material  inventories  and  charged  to  the 
goods  finished  and  in  process  account  during  the  month.  Next 
is  added  the  productive  labor  and  then  the  expense.  In  the 
various  preceding  chapters  you  have  been  shown  how  these 
have  one  by  one  been  accumulated.  Therefore  this  statement 
is  not  new  work,  it  is  merely  a  compendium  of  ready  figures.  In 
addition  to  these  we  also  show  any  abnormal  expense  that  was 
added  to  the  goods  finished  and  in  process,  as  has  already  been 
explained  in  the  article  on  abnormal  expense.  The  total  of  all 
of  these  consumptive  figures  is  added  to  the  inventory  of  goods 
finished  and  in  process  at  the  beginning  of  the  month. 

If  from  the  goods  in  process  any  partly  finished  work  has  been 
taken  or  if  any  items  for  asset  accounts  (for  example,  special 
machines  built  in  the  factory  for  your  own  manufacturing  pur- 
poses) has  been  taken,  these  deductions  are  listed  here  and  are 
deducted  from  the  total  inventories  and  additions.  From  this 
balance  we  deduct  the  amount  shown  in  the  "  goods  finished  and 
in  process"  account  at  the  end  of  the  month.  The  resulting 
difference  represents  the  cost  of  goods  sold  and  shipped. 

The  Normal  Manufacturing  Profit. — The  cost  of  sales  or 
goods  sold  is  analyzed  by  product  in  exactly  the  same  way  as 
were  the  sales.  The  difference  between  the  cost  of  goods  sold 
and  the  net  sales  gives  the  normal  manufacturing  profit.  This 
normal  manufacturing  must  be  corrected  by  adding  any  profit 
or  subtracting  any  loss  due  to  abnormal  expense,  to  arrive  at 
the  net  manufacturing  profit  for  the  month. 

After  determining  the  manufacturing  profit  on  the  detailed 
statement  of  operations,  Fig.  108  we  turn  back  to  Fig.  106. 

From  the  net  manufacturing  profit  we  deduct  the  selling 
expense  for  the  month,  which  gives  the  trading  profit.  For  the 
month  ending  Jan.  31  this  is  $116,893.11.  Sometimes  it  is 
well  to  normalize  the  selling  expense  in  which  event  we  would 
deduct  from  this  figure  the  abnormal  selling  expense,  thus  arriv- 
ing at  the  final  trading  profit,  or  to  use  the  accounting  expression 
the  "net  income  from  operations." 

This  is  the  profit  from  manufacturing  and  selling  a  product. 
But  very  likely  the  business  has  other  activities  which  affect 
the  profits  and  should  be  separated  from  the  factory  operations. 
For  example,  such  items  as  interest  paid  or  received,  and  cash 
discounts  taken  or  allowed  have  no  relation  to  manufacturing 
but  result  from  the  maneuvering  of  capital.  If  you  pay  interest 


CONDITIONS  AND  OPERATING  STATEMENTS  287 

it  is  for  the  use  of  more  capital  than  you  own,  and  it  cannot 
justly  be  charged  to  manufacturing.  When  you  receive  interest, 
it  is  because  you  have  excess  capital  and  the  income  does  not 
reflect  manufacturing  skill.  You  allow  a  cash  discount  for  the 
prompt  return  of  capital  which  has  gone  out  of  your  business 
in  the  form  of  finished  goods.  These  capital  charges  or  credits 
are  added  to  or  subtracted  from  your  trading  profit,  thereby 
arriving  at  a  final  net  profit  from  all  operations. 

We  do  not  describe  these  financial  statements  in  the  hope  of 
making  accountants  out  of  business  men.  But  we  have  tried  to 
describe  them  in  such  a  way  that  business  men  will  see  just  how 
it  is  that  properly  assembled  statements  actually  do  picture  the 
conditions  and  operation  of  the  business.  Based  as  these  state- 
ments are,  both  upon  the  general  books  of  account  and  upon  the 
cost  system,  they  tie  together  and  give  close  control  of  the  busi- 
ness. In  the  ordinary  machine  shop  it  should  be  possible  to 
lay  these  reports  upon  the  executive's  desk  within  three  or  four 
days  after  the  close  of  each  month ;  certainty  in  no  case  later  than 
the  8th  or  9th — even  in  plants  with  1,000  people  on  the  payroll. 


CHAPTER  XXV 
WHAT  DOES  IT  COST  TO  SELL? 

Profits  more  often  fail  to  materialize  because  it  costs  too  much 
to  sell  than  because  manufacturing  costs  are  too  high.  Yet 
the  progressive  man  who  insists  on  knowing  just  what  it  costs 
him  to  make  a  product  will  commonly  lump  his  selling  expense 
in  the  crudest  way.  He  maintains  clerks  to  gather  the  actual 
amount  of  labor  and  material  that  go  into  each  part — even  into 
each  nut  and  bolt;  he  uses  admirably  logical  reasoning  to  arrive 
at  the  correct  way  to  allocate  the  various  and  intricate  elements 
of  overhead;  all  to  the  end  that  he  may  know  just  what  profit 
he  makes  on  each  line  and  size  of  his  product.  Then  he  off- 
handedly throws  all  selling  expense — salesmen's  salaries,  adver- 
tising, shipping,  credit  department  and  a  dozen  other  diversified 
items  into  one  pot  and  says,  "My  total  selling  expense — $100,000 
— is  5  per  cent  of  my  total  sales,  therefore,  I  shall  say  that  5 
per  cent  of  the  selling  price  of  any  item  is  the  cost  to  sell  it." 

It  may,  by  pure  chance,  cost  him  exactly  $500  to  sell  a  $10,000 
machine  against  stiff  competition  to  a  man  who  buys  only  from 
good  entertainers.  But  it  will  hardly  cost  $20  to  sell  a  $400 
repair  part,  which  no  one  else  makes,  to  a  man  who  owns  one  of 
his  machines.  Such  contrasting  sales  conditions  as  this  show 
plainly  the  error  of  considering  that  the  sales  price  is  an  accurate 
measure  of  the  cost  of  selling.  But  the  man  who  contemplates 
this  subject  is  apt  to  let  his  thoughts  carry  him  into  considering 
other  factors  that  affect  the  difficulty — and  hence  the  cost — with 
which  sales  are  made.  They  are  so  diverse  and  require  so  much 
definite  knowledge  of  subjects  on  which  little  knowledge  exists 
that  he  humanly  decides  to  use  an  easy  method,  though  knowing 
it  is  wrong.  Hence  the  percentage  of  price  method  of  allocating 
selling  expense. 

We  find  that  when  figures  on  any  phase  of  business  are  lumped 
in  an  offhand  way  the  method  is  not  only  wrong  but  usually 
well  known  to  be  wrong.  Therefore  it  is  not  surprising  to  find 
that  selling  expense,  which  by  many  concerns  is  disposed  of  most 

288 


COST  TO  SELL  289 

easily  of  all  overhead  items,  is  worthy  of  careful  analysis,  and  is 
in  fact  the  most  intricate  of  all  and  the  most  difficult  to  handle 
correctly. 

Problems  in  Selling  Costs. — Of  course  there  are  exceptions. 
Some  businesses  are  so  fortunately  situated  that  the  old  fashioned 
way  of  bulking  the  selling  expense  will  be  safe,  although  by  no 
means  accurate.  We  would  say  that  if  a  machine  shop  found 
its  total  selling  expense  to  be  under  2  per  cent  of  its  selling  price, 
and  the  manufacturing  profit  of  each  item  to  be  20  per  cent  or 
more  of  the  selling  price,  it  would  be  safe  to  assume  that  each 
line  was  making  a  profit.  In  such  an  event  we  would  hesitate 
to  recommend  much  detailed  study  of  selling  expense,  unless  we 
had  reason  to  believe  that  it  would  turn  up  new  markets  for  the 
product. 

One  reason,  very  likely,  why  more  study  has  not  been  made 
of  this  subject  is  because  the  marketing  factor  in  each  business  is 
peculiar.  The  manufacturing  problems,  whether  of  costs  or 
of  production,  are  fundamentally  alike  for  all  machine  shops. 
That  is  why  a  book  on  machine  shop  production  and  costs  is 
worth  reading.  The  principles  are  applicable  with  slight  change 
of  method  to  any  shop.  But  the  selling  problems  are  exceedingly 
different.  The  data  on  which  a  manufacturer  of  milling  machines 
could  apportion  his  selling  expense  may  have  utterly  no  bearing 
on  that  problem  for  the  maker  of  lathes.  In  fact,  to  get  figures 
which  will  be  of  appreciable  value  requires  a  study  of  each  man's 
product,  market  and  sales  methods.  Therefore,  all  we  hope  to 
do  is  to  indicate  what  factors  affect  the  selling  expense  and  how. 
We  can  only  start  you  thinking  on  the  problem  in  straight  lines. 
Perhaps  we  can  only  indicate  to  you  that  such  a  problem — one 
well  worth  study — exists  in  your  business. 

Items  of  Selling  Expense. — First,  let  us  list  the  items  that 
commonly  go  into  the  selling  expense  pot. 

(1)  Salesmen's  salaries  and  expenses. 

(2)  Commissions  and  trade  discounts  to  agents. 

(3)  Magazine  advertising. 

(4)  Direct  mail  advertising  and  catalogs. 

(5)  Supervision  of  salesmen — the  sales  manager  and  his  office  staff. 

(6)  The  advertising  manager  and  his  office  staff. 

(7)  The  clerical  cost  of  entering  and  billing  sales. 

(8)  The  credit  and  collection  department. 

(9)  Shipping  and  packing  expense. 
(10)  Share  of  rent,  light,  heat,  etc. 

19 


290      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

Now  what  is  it  that  can  be  learned  from  an  analysis  of  these 
items?  First,  selling  cost  by  lines  of  product;  second,  the  rela- 
tive skill  and  activity  of  salesman;  third,  the  relative  produc- 
tiveness of  territories;  fourth,  the  relative  effectiveness  of  the 
kinds  of  advertising.  The  selling  cost  by  lines  of  product  is 
put  first  because  to  most  men  it  will  seem  most  important,  It  is 
actually  one  of  the  last  to  be  determined  because  it  is  so  complex. 
For  example,  it  might  be  found  that  the  selling  cost  for  one  item 
varies  for  every  territory.  For  one  reason  or  another  the  con- 
cern's product  may  be  highly  thought  of  in  the  Detroit  district 
and  the  selling  expense  be  proportionately  low  In  the  Cleve- 
land territory  the  same  type  of  user  may  lean  toward  a  competi- 
tor's tool  and  our  manufacturer  would  find  it  hard  to  sell  there. 
That  may  be  due  to  the  fact  that  the  advertising  has  been 
concentrated  more  in  the  Detroit  district.  Any  number  of 
reasons  exist  for  such  a  condition.  If  the  prospective  buyers 
are  more  numerous  in  one  territory  than  another,  a  lower  cost 
per  call  and  hence  per  sale  may  result. 

The  Measure  of  Selling  Cost. — Then  there  is  the  undoubted 
fact  that  it  is  not  always  as  easy  to  sell  one  item  as  another. 
This  has  been  recognized,  in  fact  it  probably  is  the  reason  why 
the  percentage  of  selling  price  methods  has  been  so  widely  used, 
for  superficially  it  may  seem  that  it  is  twice  as  hard  to  sell  a 
$10,000  item  as  it  is  to  sell  a  $5,000  one.  Actually,  though,  it 
is  easier  to  sell  some  buyers  the  higher  priced  one,  for  not  a 
few  assume  that  price  is  an  index  of  quality.  Most  anyone  will, 
after  a  little  thought,  agree  that  it  is  harder  to  sell  a  $500  machine 
to  each  of  20  buyers  than  a  $10,000  machine  to  one.  Therefore 
the  gross  sales  are  not  a  guide. 

The  realization  of  these  inaccuracies  in  his  methods  led  one 
manufacturer  to  reason  that  between  two  of  his  machines  it  was 
harder  to  sell  the  one  that  carried  the  wider  profit  margin.  That 
is,  if  a  $10,000  machine  gave  a  profit  of  $1,000  and  another  type 
of  machine  selling  for  $5,000  gave  the  same  profit,  the  same  selling 
expense  was  charged  to  each.  In  some  cases  that  might  be  a 
fair  assumption,  for  wide  margins  of  profit  attract  competition 
and  the  presumption  is  that  the  competition  encountered  would 
be  more  intense  in  the  high  profit  lines.  But  these  lines  often 
carry  wide  profits  because  of  patent  monopoly.  Then  we  can 
properly  consider  the  margin  of  profit  as  an  influence  upon  selling 
expense  but  not  as  an  accurate  direct  measure. 


COST  TO  SELL  291 

The  fallacy  of  using  either  selling  price  or  profit  as  a  measure 
of  the  cost  of  selling  comes  from  considering  the  selling  expense 
as  a  lump  sum.  Actually,  as  we  have  seen,  it  consists  of  a  number 
of  diverse  charges  incurred  for  entirely  different  activities,  all 
of  which,  however,  are  for  the  purpose  of  selling,  or  which  inevi- 
ably  result  when  a  sale  has  been  made. 

We  have  already  pointed  out  that  the  sales  dollar  is  not  the 
logical  way  to  apportion  the  expense  of  the  direct  selling  effort, 
which  consists  of  the  salesman's  salary  and  expenses,  a  share  of 
the  sales  manager's  salary  for  supervision  and  the  office  corre- 
spondence with  the  prospect,  for  a  salesman  in  one  territory  may 
make  a  $10,000  sale  on  a  single  call,  while  another  salesman 
may  reach  the  $10,000  mark  only  by  virtue  of  twenty  sales  of 
$500  each,  which  may  have  resulted  from  50  or  more  calls. 
Certainly,  no  one  will  disagree  that  it  has  cost  the  company 
more  to  make  the  20  sales  than  it  did  the  one. 

Putting  Selling  on  Scientific  Basis. — A  more  nearly  accurate 
method  for  handling  the  direct  items  of  selling  expense  seems  to 
be  on  the  basis  of  a  cost  per  call.  Therefore,  as  a  preliminary 
to  building  even  approximately  correct  selling  costs,  we  recom- 
mend that  fairly  minute  and  accurate  reports  be  required  from 
each  salesman.  Where  this  has  not  already  been  required,  the 
salesman  may  be  expected  to  protest  against  being  required  to 
do  clerical  work. 

It  is  a  common  failing  of  salesmen  to  look  on  themselves  as 
supermen  of  a  sort  and  they  often  fool  themselves  into  believing 
that  common  business  practice  does  not  apply  to  their  work,  and 
that  sales  result  from  a  sort  of  mysterious  magic.  The  aversion 
of  salesmen  to  doing  even  a  small  amount  of  simple  clerical 
work  is  not  insuperable.  It  is  being  required  by  some  of  the 
largest  concerns,  and  those  concerns  are  invariably  found  to  have 
most  accurate  information  as  to  their  selling  costs,  as  well  as  the 
best  selling  methods.  An  instance  is  that  of  several  concerns  in 
different  industries  which  supply  the  salesmen  with  very  compre- 
hensive report  sheets  on  which  they  are  required  to  list  not 
only  the  calls  made  each  day  but  the  length  of  time  spent  with 
the  prospect  and  the  length  of  time  it  takes  them  to  go  from  one 
prospect's  office  to  another's.  In  fact,  the  entire  7  hours  a 
day  which  they  are  expected  to  put  in  is  accounted  for.  In 
addition,  these  reports  list  the  reasons  why  goods  were  sold  or 
\  were  not  sold,  as  well  as  the  objections  put  forward  by  the 
prospect. 


292      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

The  objection  of  salesmen  to  filling  out  reports  of  this  sort  has 
been  successfully  overcome;  in  fact,  it  is  questionable  whether  it 
is  any  more  of  an  obstacle  than  is  invariably  met  with  in  the  shop 
when  proper  cost  systems  are  installed.  The  average  mechanic 
feels  much  the  same  way  about  reporting  his  time  as  a  salesman 
does  and  yet  thousands  of  manufacturing  plants  are  successfully 
obtaining  time  reports  from  their  workmen. 

We  strongly  feel  that  most  valuable  information  can  be 
obtained  by  requiring  salesmen  to  strip  the  mystery  from  their 
activities  and  making  them  tell  their  employers  definitely  how 
they  spend  their  days.  With  such  data  as  this,  the  manufacturer 
can  escape  the  tyranny  of  the  successful  salesman.  With  the 
information  he  will  get  he  can  put  selling  more  nearly  on  the 
scientific  basis  that  he  already  has  achieved  in  manufacturing. 

The  Salesmen's  Calls. — The  average  calls  per  day  as  developed 
by  these  records  will  be  an  indication  of  the  activity  of  the 
salesman.  Of  course,  in  dense  districts  the  calls  will  run  much 
higher  than  in  those  districts  where  prospects  are  sparse.  Conse- 
quently, the  cost  per  call  will  be  lower.  This  leads,  naturally,  to 
an  accurate  study  of  the  market  possibilities  of  the  product — 
information  which  few  manufacturers  have.  We  recall  a  manu- 
facturer of  incandescent  lamps  who  insisted  that  whenever  one 
of  his  salesmen  saw  a  factory  chimney,  he  was  to  call  upon  the 
owner  of  the  chimney,  for  it  was  assumed  that  every  manufactur- 
ing plant  was  a  prospect  for  electric  lamps.  As  a  matter  of  fact, 
in  those  days  only  about  half  of  the  factories  used  electricity. 
It  should  be  obvious  that  a  manufacturer  of  a  special  machine 
cannot  safely  assume  that  every  machine  shop  is  a  prospective 
buyer.  Again,  it  is  very  difficult  to  determine  in  the  bulk  the 
total  possibilities  of  a  district,  because  it  is  hardly  possible  to 
predetermine  how  many  machines  each  buyer  can  comfortably 
absorb. 

It  is  our  firm  belief  that  until  a  manufacturer  has  very  much 
more  accurate  knowledge  as  to  the  absorptive  power  of  his  various 
sales  districts  than  is  now  the  rule,  it  will  be  difficult  to  get  even 
an  approximately  accurate  selling  cost  by  lines  and  by  districts. 
It  is  however  entirely  possible  to  make  surprisingly  accurate 
analyses  of  markets.  The  difficulties  are  much  more  apparent 
than  real. 

In  some  lines,  it  should  be  possible  to  obtain  a  record  which 
will  be  an  accurate  indication  of  the  closing  ability  of  the  sales- 


COST  TO  SELL  293 

man.  This  might  take  the  form  of  a  report  showing  the  number 
of  items  sold  per  call  made,  although  that  in  some  instances 
might  be  more  nearly  a  reflection  of  the  absorptive  power  of  the 
district.  When  the  salesman  sells  to  a  single  buyer  several 
items  at  a  single  call,  probably  as  fair  a  way  to  divide  the  selling 
expense  as  could  be  devised  would  be  to  take  the  salesman's 
judgment  as  to  the  relative  difficulty  of  selling  the  various  items. 
With  a  comprehensive  report,  such  as  we  have  already  recom- 
mended, this  would  be  easily  determined. 

After  data  has  been  gathered  for  a  few  months,  it  should  be 
possible  to  determine  for  each  territory  the  normal  cost  per 
call  and  a  normal  selling  cost  per  item.  These  figures,  naturally, 
would  have  to  be  revised  from  time  to  time  to  meet  changes  in 
the  cost  of  traveling.  It  should  be  approximately  uniform  with 
a  district,  regardless  of  the  salesmen's  salaries,  for  the  presump- 
tion is  that  as  a  man's  salary  is  increased  his  selling  ability  also 
increases  at  least  in  proportion.  With  such  a  figure  we  are  in 
the  same  position  as  regards  direct  selling  expense  as  we  are  for 
the  overhead  expense  of  the  various  productive  departments; 
that  is,  we  have  a  normal  figure,  subject  to  revision  at  fairly 
long  intervals,  with  which  we  can  compare  the  actual  direct 
selling  cost  of  each  man  and  thereby  have  a  rather  fair  line  on 
the  relative  merits  of  the  salesmen. 

For  Comparison. — When  the  data  have  been  gathered,  it  may 
seem  feasible  to  assign  a  unit  value  to  various  lines  in  the  different 
territories  by  means  of  which  the  selling  cost  of  all  lines  in  all 
territories  may  be  brought  down  to  a  common  basis  for  purposes 
of  comparison.  Here  it  is  well  to  keep  in  mind  that  while  it 
may  be  more  difficult  to  sell  one  machine  than  another,  it  is 
seldom  more  difficult  to  sell  a  large  machine  of  a  given  type  than 
a  smaller  one.  Whether  a  prospective  buyer  purchases  an  8- 
inch  lathe  or  a  16-inch  lathe  depends  entirely  upon  the  customer's 
needs  and  not  upon  any  special  effort  put  forth  by  the  salesman 
to  sell  the  higher-priced  lathe.  This  is  another  proof  that  the 
application  of  selling  expense  on  the  sales  dollar  is  misleading,  for, 
while  the  16-inch  lathe  sells  for  more  than  the  8-inch  lathe,  the 
same  degree  of  difficulty  in  selling  would  probably  be  encountered 
with  each. 

Certain  expenses  that  result  after  the  sale  has  been  made, 
such  as  those  in  the  billing  department,  order  department,  the 
accounts  receivable,  ledger  clerks  and  so  on  are  most  accurately 


294      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

charged  as  so  much  per  item.  It  admittedly  takes  as  much  effort 
to  enter  a  sale  of  a  $10  repair  part  as  for  a  $10,000  machine. 
Where  each  item  is  made  to  carry  the  same  charge  we  frequently 
find  that  concerns  discover  that  they  have  been  fooling  them- 
selves on  the  profit  which  they  have  been  making  on  their  repair 
parts.  It  is  not  unusual  to  find  that  the  clerical  expense  required 
to  handle  repair  parts  very  often  eats  up  the  possible  profit. 

The  bad  debts  of  a  business  can  usually  properly  be  charged 
as  a  percentage  of  the  total  sales.  In  certain  cases  they  will, 
however,  be  found  to  follow  them  less  closely  than  they  do  the 
number  of  accounts  handled.  The  cost  of  passing  on  credits, 
as  well  as  the  cost  of  collecting  slow  accounts  are  in  like  case 
with  the  bad  debts.  As  a  general  rule  the  volume  of  sales  will 
dictate  how  much  effort  the  credit  department  must  put  forth. 

Errors  in  Expense. — The  shipping  and  packing  expense  is, 
in  some  businesses,  a  large  one  which,  if  incorrectly  allocated, 
will  bring  serious  errors  into  the  selling  expense.  The  effort 
involved  commonly  depends  upon  the  conditions  peculiar  to 
the  district  in  which  the  goods  have  been  sold.  If  the  sale  is 
made  to  a  next  door  neighbor,  perhaps  it  will  not  be  necessary 
to  pack  the  goods  at  all.  If  to  a  point  a  thousand  miles  from  the 
factory,  fairly  strong  packing  may  be  required,  while  if  the  sale 
is  to  a  foreign  country,  more  expensive  packing  still  will  be 
needed.  We  have  recommended  several  times,  with  good  results, 
that  a  normal  shipping  and  packing  cost  be  developed  for  each 
territory  and  for  each  item  which  is  salable  in  that  territory. 

Further  difficulties  arise  when  an  attempt  is  made  to  distri- 
bute advertising  expense.  This  will  very  largely  depend  upon 
the  nature  of  the  advertising.  If  the  magazine  advertisement 
pushes  a  single  line  of  product,  it  is  of  course  possible  to  divide 
it  over  the  units  of  that  item  sold.  To  be  entirely  just,  however, 
the  amounts  of  the  magazine's  circulation  in  the  various  sales 
districts  should  be  determined  and  a  normal  advertising  cost 
per  sale  for  each  district  developed.  Where  more  than  one  maga- 
zine is  used,  the  problem  is  complicated,  but  is  still  subject  to 
handling  on  the  same  basis.  When  it  is  possible  to  key  the 
advertisement  in  the  various  magazines  so  that  the  relative 
pulling  power  of  each  can  be  determined,  valuable  information 
can  be  arrived  at,  but  that  is  oftentimes  difficult.  When  the 
magazine  advertising  does  not  push  one  line  of  product  over 
another,  but  is  along  institutional  lines  for  the  good  of  the  busi- 


COST  TO  SELL  295 

ness  as  a  whole,  it  is  still  possible  to  normalize  the  advertising 
expense  by  districts  and  then  divide  the  cost  among  the  various 
lines  of  product  in  much  the  same  way  as  we  have  suggested 
for  handling  the  direct  selling  expense  by  lines.  Direct-by-mail 
advertising  may  be  handled  in  the  same  way,  although  more 
easily  than  the  magazine  advertising  because  the  mailing  list 
will  show  exactly  how  many  mailings  go  to  each  territory. 

Territory  an  Important  Factor. — When  the  entire  output  of  a 
plant  is  sold  through  jobbers  or  commission  representatives, 
the  problem  of  properly  allocating  selling  expense  is  easy  for  the 
manufacturer  for  he  is  practically  throwing  the  burden  of  deter- 
mining it  upon  his  agent.  So  far  as  the  manufacturer  is  con- 
cerned in  such  a  case,  it  is  entirely  proper  to  allocate  the  selling 
expense  as  a  whole  as  a  percentage  of  the  selling  price,  for  it  is 
common  practice  to  bill  the  jobber  at  the  list  price  less  the  dis- 
count. The  discount  is  of  course  the  selling  cost  so  far  as  the 
manufacturer  is  concerned. 

As  we  have  said  before,  little  can  be  done  accurately  to 
allocate  selling  cost  unless  very  definite  knowledge  is  had  as  to 
how  much  business  in  different  lines  of  product  each  territory 
should  produce.  We  have  repeatedly  seen  cases  where  the  so- 
called  "star  salesman"  has  been  shifted  to  another  district  and 
shown  himself  to  be  a  complete  failure.  Many  a  selling  reputa- 
tion has  been  made  because  the  man  was  fortunate  enough  to 
have  an  exceedingly  easy  territory,  and  on  the  other  hand  we 
have  no  doubt  but  that  many  a  potentially  good  salesman  has 
decided  that  his  forte  was  truck  driving,  after  a  few  months' 
effort  to  sell  in  a  barren  territory.  While  an  accurate  knowledge 
of  his  markets  is  seldom  possessed  by  the  manufacturer,  it  is 
entirely  possible  for  him  to  get  this  information.  Until  he 
knows  what  each  territory  should  produce,  he  is  going  by  guess, 
a  method  which  he  would  hardly  use  in  the  manufacturing  end 
of  his  business. 


CHAPTER  XXVI 
GRAPHIC  METHODS  OF  CONTROL 

Graphic  charts  sometimes  affect  an  executive  as  does  golf, 
in  that,  after  first  scorning  the  fad,  he  is  in  danger  of  taking  it 
up  so  enthusiastically  that  he  finds  but  little  time  left  for  his 
business. 

Charts  may  or  may  not  be  inexpensive,  yet  valuable,  aids  to 
managing.  It  is  undoubtedly  true  that  a  picture  is  more  effective 
than  a  thousand  words  of  description — to  some  men.  Business 
facts  are  sometimes  more  quickly  grasped  in  the  form  of  graphs 
than  as  columns  of  figures.  But  that  is  not  always  true;  some- 
times complex,  hard  to  read  graphs,  are  drawn  up  to  present 
simple  and  perhaps  unimportant  facts. 

For  example,  one  executive  determined  to  have  his  expense 
analyses  drawn  up  graphically.  Opposite  each  item  he  drew  a 
horizontal  line  whose  length  indicated  the  value  of  the  normal 
figure.  Under  this  a  red  line  was  drawn  to  show  the  actual 
amount  of  that  item  for  the  month.  At  a  glance  the  relative 
length  of  the  lines  showed  whether  the  actual  expenses  were 
greater  or  less  than  the  normal,  and  approximately  how  much. 
But  the  expense  analysis  which  has  been  reproduced  in  this  book 
gives  the  normal  and  actual  expense  in  the  exact  figures.  Since 
they  are  in  parallel  columns  and  require  no  further  analysis  to 
tell  their  story  they  are  much  easier  to  read  than  a  graph  and 
more  accurate.  To  graph  them  takes  nearly  half  the  time  of  a 
clerk. 

When  Should  a  Graphic  Chart  Be  Used? — This  is  a  typical 
example  of  the  kind  of  report  not  to  chart.  At  the  other  extreme 
is  the  graphic  control  chart  used  in  planning  production  which  is 
shown  in  Fig.  33,  Chap.  VII.  Here  the  problem  was  to  show  by 
hours  the  progress  of  a  large  number  of  different  parts  from 
machine  to  machine.  These  figures  have  to  be  changed  from  day 
to  day  to  reflect  the  actual  performance  of  the  factory.  Even 
though  it  might  be  possible  to  draw  up  a  form  on  which  the  infor- 
mation could  be  shown,  the  information  in  other  than  graphic  form 

296 


GRAPHIC  METHODS  OF  CONTROL 


297 


would  be  unintelligible  and  the  clerical  work  would  be  so  tremend- 
ous that  the  data  would  be  out  of  date  before  it  was  compiled; 
and  the  mere  physical  bulk  of  the  control  mechanism  would  be 
enormous.  A  single  clerk,  however,  can  keep  the  charts  up  to 
the  minute,  and  the  future  plans  for,  and  the  present  condition  of 
production  are  easily  grasped.  For  such  a  purpose  the  graphical 
chart  is  justified.  When  figures  are  more  easily  read  than  curves, 


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Monthly  Sales  .in  Dollars 
FIG.   109. — Misleading  sales  chart. 

figures  should  be  used.  For  the  border  line  cases,  careful  consid- 
eration should  precede  the  decision  to  use  graphs.  Ordinarily, 
we  believe  that  statistics  are  more  easily  grasped  as  figures  than 
as  graphs.  But  graphs  are  undeniably  spectacular  and  poor 
ones  often  find  their  way  into  the  routine  of  a  business  because 
of  a  childlike  love  of  pretty  figures  which  most  of  us  have. 


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Monthly  Sales  in  Dollars 

FIG.   110. — A  better  chart  for  monthly  sales. 

Dangers  in  Charts. — There  is  a  danger  inherent  in  certain 
types  of  graphic  curves  that  must  be  guarded  against.  Take 
the  chart  shown  in  Fig.  109.  To  our  minds,  this  information 
might  much  better  be  shown  in  figures,  or  in  the  graphical 
form  shown  in  Fig.  110.  The  reason  is  this:  The  points  which 
determine  the  curve  are  located  on  the  last  day  of  the  month  and 
are  the  total  sales  for  the  month.  But  we  find  that  most  men 


298      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

unconsciously  fall  into  the  habit  of  considering  that  they  can 
determine  the  sales  for  intermediate  periods  from  the  curve. 
For  instance,  they  will  assume  that  the  sales  for  the  first  half  of 
September  are  $50,000  because  the  curve  on  Sept.  15  is  at  $50,000. 
Actually  on  such  a  chart  the  month  does  not  cover  the  vertical 
space,  but  simply  the  vertical  line.  How  ridiculous  such  a  pro- 
ceeding is,  is  shown  when  one  tries  to  interpolate  when  sales  are 
falling  off,  for  in  March  it  would  appear  that  more  goods  were 
sold  up  to  the  15th  than  for  the  full  month.  The  temptation 
to  make  this  error  does  not  exist  if  the  information  is  presented 
as  in  Fig.  110. 

Mathematical  curves  are,  of  course,  drawn  so  that  any  inter- 
mediate figures  may  be  determined.  Most  business  curves  are 
not  mathematical;  they  are  purely  statistical. 

Valuable  Types  of  Charts. — To  my  mind,  the  most  valuable 
charts  are  those  which  enable  the  executive  to  forecast  conditions. 
The  three  charts  shown  in  Fig.  Ill  are  for  consecutive  weeks. 
They  show  the  exact  activity  of  the  mechanics  in  a  department, 
and  give  information  on  which  to  determine  whether  or  not 
additional  work  for  those  machines  is  needed  or  can  be  taken. 
In  that  way,  they  serve  to  guide  the  sales  department. 

By  showing  the  amount  of  work  ahead,  they  guide  the  labor 
department  by  making  known  the  need  for  additional  men,  or 
the  possibility  of  dropping  a  few,  weeks  ahead.  One  man  keeps 
these  charts  up  to  date  in  about  3  hours  a  week. 

They  show  the  weak  spots  in  unmistakable  form,  for  it  should 
be  borne  in  mind  that  owing  to  the  balancing  of  production  by 
the  planning  department,  any  machines  behind  schedule  mean 
that  certain  parts  will  be  lacking  when  the  assembly  floor  is 
reached  and  consequently  some  parts  will  accumulate  on  the 
assembly  floor  waiting  for  others. 

They  also  show  the  amount  of  work  scheduled  for  the  shop 
each  week,  in  advance. 

These  particular  charts  show  very  clearly  the  decrease  in  work 
going  into  the  plant  due  to  the  lack  of  new  orders.  These  condi- 
tions were  predicted  from  the  charts  and  on  the  week  following 
that  for  which  Chart  3  was  drawn,  the  working  force  was  reduced 
and  also  the  week  was  reduced  from  55  to  44  hours. 

The  Charts  in  Detail. — It  may  be  interesting  to  follow  these 
charts  in  a  little  more  detail;  for  example,  Chart  1  shows  through 
line  "B  "  that  the  entire  department  is  behind  schedule  anywhere 


GRAPHIC  METHODS  OF  CONTROL 


299 


300      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

from  1  to  3  weeks.  Line  "C"  shows  a  healthy  and  well-balanced 
amount  of  work  being  sent  into  the  shop. 

Chart  2  shows  a  marked  increase  in  some  instances  of  work 
behind  the  schedule,  notably  machine  No.  7914.  This  chart 
also  shows  a  marked  decrease  in  the  amount  of  work  going  into 
the  shop. 

Chart  3  shows  a  decrease  in  work  behind  schedule,  due  in  part 
to  the  small  amount  of  new  work  scheduled  for  that  week  and 
also  because  machines  No.  7914,  7925,  7926  and  7927  were  worked 
overtime  in  an  endeavor  to  balance  production  and  allow  the 


FIG.   112. — Chart  showing  activity  in  hours  ahead  or  behind  weekly  schedule. 

assembly  floor  to  clean  up  its  work,  which  resulted  in  cutting 
down  the  working  hours  of  the  factory. 

These  charts  may  be  confusing  to  some,  because  the  time  ele- 
ment does  not  enter  into  any  single  chart,  each  chart  being  for 
a  single  week.  Commonly,  charts  show  time  from  left  to  right. 
Therefore,  these  charts  might  well  be  drawn  a  chart  to  a  machine 
as  in  Fig.  112,  plotting  the  activity  in  hours  vertically  and  the 
time  in  weeks  horizontally.  The  information  would  be  shown 
as  well — perhaps  to  some  minds,  better.  We  mention  this 
alternative  simply  to  show  that  usually  information  can  be 
presented  in  graphs  in  several  ways  and  it  is  up  to  the  executive 
to  decide  which  way  he  prefers. 

A  common  fault  is  to  draw  too  many  curves  on  a  single  chart 
with  the  resultant  crisscrossing  of  lines  which  makes  the  chart 
hard  to  read.  If  the  curves  are  not  related,  draw  but  a  single 
curve  to  a  chart.  If  they  are  related  and  it  is  desired  to  see 
how  one  set  of  figures  is  affected  by  the  movement  of  another 
set,  it  is  best  to  reduce  the  two  sets  to  a  ratio  and  plot  the  ratio. 

Take  for  an  example  the  two  charts,  Figs.  113  and  114.  It  is 
often  desirable  to  watch  the  amount  of  non-productive  labor, 


GRAPHIC  METHODS  OF  CONTROL 


301 


lest  it  run  unduly  high  for  the  amount  of  productive  labor.  Now, 
the  productive  and  non-productive  payrolls  can  be  plotted  month 
by  month,  as  in  Fig.  113  but  the  chart  is  hard  to  read  because  the 
lines  crisscross.  Then  it  requires  what  amounts  to  a  mental 
calculation  to  determine  whether  at  any  time  the  productive 


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Productive  to  Non-productive  Pay-rolls 
FIG.   113. — Chart  of  productive  and  non-productive  pay  rolls. 

payroll  is  rising  too  rapidly  considering  the  amount  of  the  non- 
productive. The  information  is  given  at  a  glance  in  Fig.  114 
where  the  dollars  and  cents  of  each  payroll  are  reduced  to  a 
single  curve  which  is  the  ratio  of  the  non-productive  to  the 
productive  expressed  in  per  cent. 

Two    Problems    in    Ratios. — Suppose   that   past   experience 
showed  that  for  this  plant  a  normal  ratio  based  on  efficient 


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Percent  Non- productive  to  Productive  Labor 
FIG.   114. — Chart  showing  ratio  between  pay  rolls. 

manufacturing  demanded  that  for  each  dollar  of  productive 
labor,  a  dollar  of  non-productive  labor  was  required.  The 
horizontal  line  a-a  at  the  100  per  cent  point  shows  this  normal. 
Then  monthly,  as  shown  on  this  chart,  or  even  weekly  or  daily, 
the  actual  ratio  is  plotted.  So  long  as  the  actual  ratio  approxi- 
mates the  normal,  conditions  are  satisfactory.  But  if  the  ratio 
rises  far  above  100  per  cent,  as  for  May  and  June,  steps  will  be 
taken  to  lay  off  some  of  the  non-producers. 


302      PRODUCTION  ENGINEERING  AND  COST  KEEPING 

This  condition  may  be  due  to  the  plant  activity  falling  off 
and  failure  of  the  foremen  to  reduce  the  non-productive  force 
proportionately,  or  it  may  be  caused  by  undue  expansion  of  the 
non-productive  force  which  nearly  always  occurs  when  supervi- 
sion is  lax.  In  the  small  plant,  it  may  be  sufficient  to  make  one 
chart  cover  the  entire  factory;  in  larger  plants  it  may  be  well  to 
make  such  a  chart  for  each  department  a  main  division. 

Similar  in  appearance  is  the  chart  shown  in  Fig.  115,  which 
shows  the  actual  hourly  overhead  rate  of  a  department  as  com- 
pared with  the  normal.  The  data  from  which  the  chart  is  drawn 


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Hourly  Expense  Rate 
FIG.   115. — Chart  of  hourly  expense  rate. 

comes  from  the  expense  analysis  for  the  department.  The  line 
a-a  is  the  standard  hourly  rate — 85  cents — based  on  normal  acti- 
vity of  the  department.  During  the  first  3  months  of  the  year 
shown  on  the  chart,  the  department  was  operating  somewhat 
above  normal  activity  and  the  hourly  rate  was  therefore  safely 
below  normal.  In  April,  new  orders  began  to  fall  off,  so  steps 
were  taken  to  reduce  overhead  with  the  resulting  tendency  back 
toward  a  normal  rate  as  shown  for  May.  Business,  however, 
got  steadily  slacker,  and  the  curve,  by  rising  promptly,  showed 
the  tendency.  Had  radical  cuts  in  overhead  not  been  made, 
the  curve  would  very  likely  have  soared  off  the  chart.  As  it 
was,  it  rose  considerably  until  October,  when,  with  new  business 
coming  in,  the  factory  increased  its  activity  and  the  hourly  rate 
approached  normal. 

Such  curves  as  the  last  two  described,  both  of  which  show 
ratios  and  their  tendencies,  are  among  the  most  valuable  an 
executive  can  get. 

Ratio  between  Collection  and  Sales. — It  is  not  uncommon 
to  have  a  chart  showing  the  state  of  collections  from  month  to 
month.  However,  the  mere  rise  and  fall  of  the  collection  line 


GRAPHIC  METHODS  OF  CONTROL  303 

does  not  give  much  of  an  indication  as  to  how  well  customers 
are  paying  unless  it  is  related  to  the  amount  of  sales,  and  inas- 
much as  few  businesses  sell  for  cash,  a  chart  on  which  there  was 
a  line  for  sales  and  another  line  for  collections  would  not  mean 
much.  Therefore,  it  is  best  to  draw  a  curve  representing  the 
ratio  between  collections  and  sales.  If  a  business  sells  on  30 
days7  time,  the  business  is  obviously  collecting  this  month  for 
the  sales  made  last  month.  Therefore  a  curve  for  such  a  business 
would  consist  of  a  ratio  expressed  in  a  per  cent  of  this  month's 
collections  to  last  month's  sales.  If  the  terms  of  sale  were  60 
days,  the  ratio  would  be  between  this  month's  collections  and 
month  before  last's  sales.  It  is  not  necessay  to  reproduce  a 
chart  of  this  sort,  for  it  can  well  be  drawn  in  the  same  way  as 
that  shown  in  Fig.  115.  Then,  if  the  line  rose  from  month  to 
month,  it  would  show  that  customers  were  taking  more  than  the 
proper  time  which  would  indicate  either  laxity  on  the  part  of 
the  collection  department  or  a  disturbing  condition  in  the  trade. 
In  either  event,  it  would  indicate  to  the  executive  that  some  steps 
were  necessary  and  it  would  not  be  difficult  for  him  to  decide 
which  steps  to  take.  It  might  even  be  well  to  chart  a  similar 
curve  showing  the  ratio  between  the  collections  that  were  coming 
in  on  the  discount  date  and  those  which  were  allowed  to  run  to 
the  full  time. 

The  Master  Chart. — There  is  one  other  type  of  chart  different 
from  any  that  have  been  discussed  which  is  generally  referred  to  as 
a  master  chart.  The  purpose  of  a  chart  of  this  kind  is  to  provide 
a  means  by  which  the  executive  can  make  sure  that  he  is  keeping 
his  working  capital  in  balance.  The  working  capital  of  a  business 
consists  of  cash,  raw  materials,  goods  in  process,  finished  goods 
and  accounts  receivable.  The  rate  of  capital  turnover,  and 
hence  to  a  degree,  the  profits  of  the  business,  depend  upon  keeping 
the  working  capital  properly  balanced  between  these  various 
forms.  It  may  seem  to  many  executives  that  it  is  unlikely  that 
a  business  will  have  more  cash  on  hand  than  it  needs,  but  that  is 
a  condition  which  is  not  at  all  impossible.  It  is  granted,  however, 
that  weaknesses  in  the  manipulation  of  working  capital  are  more 
apt  to  come  through  having  too  large  a  goods-in-process  account, 
through  over-buying  raw  materials  when  the  sales  department 
brings  in  large  orders,  or  through  under-buying  caused  by  undue 
conservatism  which  may  result  in  delays  to  production.  It  is 
also  perfectly  apparent  that  accounts  receivable  may  be  allowed 


304        PRODUCTION  ENGINEERING  AND  COST  KEEPING 

to  swell  to  undue  proportions.  The  point  is  that  it  is  possible 
in  any  business  to  determine  the  amount  of  money  which  should 
be  represented  in  each  of  these  forms  of  working  capital  for  any 
condition  of  the  business. 

By  drawing  graphs  for  each  item  on  a  chart  with  another 
graph  showing  unfilled  orders  on  hand,  the  executive  can  check 
up  the  condition  of  his  plant  quickly.  For  example,  he  might 
receive  a  report  showing  a  million  dollars  worth  of  unfilled  orders, 
half  a  million  dollars  worth  of  raw  material  and  three  million 
dollars  of  goods  in  process.  By  referring  to  the  chart  which  shows 
the  ideal  figures,  he  may  find  that  for  this  amount  of  unfilled 
orders,  three  hundred  thousand  dollars  worth  of  raw  material 
and  two  million  dollars  worth  of  goods  in  process  is  the  standard. 

We  are  not  showing  a  chart  of  this  sort,  for  one  that  would  do 
for  one  business  would  be  nowhere  nearly  correct  for  another. 
Such  a  chart  would  have  to  be  drawn  after  very  careful  considera- 
tion of  what  the  ideal  conditions  of  operation  were  for  the  indivi- 
dual business. 

The  whole  purpose  in  this  chapter  has  been,  not  to  recommend 
any  particular  charts  nor  even  to  recommend  the  use  of  charts. 
It  has  been  the  purpose  rather  to  suggest  charts  that  may  be  of 
value  and  to  indicate  some  of  the  wrong  methods  as  well  as  the 
right  ones  in  drawing  up  and  using  them.  Graphic  charts,  like 
cost  figures,  do  not  in  themselves  make  profits,  but  they  often 
serve  to  point  the  way  to  wrong  conditions.  It  is  then  up  to  the 
executive  to  right  these  conditions. 


INDEX 


Abnormal  expense,  accounting  for, 

260,  261 
adjustments,  due  to  261,  262, 

263,  264,  265 
report  of,  261 
what  it  is,  254,  255 
Advertising  expense,  294 
Analysis   of   expense,    building  up, 

210,  220,  235 

from  voucher  register,  211 
Analysis    of    output,     how    design 

affects,  124 
how  it  is  done,  103 
what    it    will  show,  104,  105 
Assemblies,  chart  of,  63 

schedule  analysis,  73,  74,  75,  76 

simultaneous  arrival  of,  72,  73 

Assembling  department  costs,  272, 

273 

releasing  expense  of,  250,  251 
Assets,  labor,  213 
Automatic  machines,   setting  rates 

for,  171 

standards  for,  170,  171 
time  studies  of,  164,  165,  166 


Booths,    construction    of,     94,    95 
handling  work  of,   95,   96,   97 
Bottle  necks,  eliminating,  62 
Burden  (see  Expense). 


B 


Balance,  getting  shop  in,  61 
importance  of,  69 
of  production,  85,  87 
Betterments,  through  cost  systems, 

173 

Bill  of  material,  definition  of,  42,  43 
in     planning,     105,     106,     107 
Boiler  expense,  244 
Books,  closing,  275 
Booth    system,    description    of,    90 
Production  Board,  114 
what  it  does,  89,  90 
20 


Cards,  parts  cost,  269,  270 

service,  212,  213 

Charge  register,  description  of,  190 
form  of,  188,  189 
how  handled,  190,  192 
Charges  fixed,  depreciation,  193 
insurance,  193 
taxes,  193 
what  they  are,  193 
Charts,  graphic,  dangers  in,  297,  298 
expense,  302 

forecasting,  298,  299,  300 
master,  303 

method  of  control,  296  to  304 
ratio,  301 
sales,  297 

.  when  to  use,  296,  297 
Chucking    grinders,  standard  num- 
ber of  grinds,  159 
time  studies  on,  159 
Clocks,  time,  213,  214 
Clutches,  cutting  time  of,  150,  151 

time  studies  of,  155,  168 
Communication,  means  of,  118 
Continuous    times,    advantages    of, 

129 

how  to  obtain,  128 
Cost  figures,  easy  to  understand,  182 
final,  266  to  274 
of  selling,  288  to  296 
operation,  268 
order,  268 
parts,  268,  269 
reflect  factory  operations,  181 
what  makes  them  accurate, 

192 
305 


306 


INDEX 


Cost  systems,  as  a  guide  to  policies, 

175 

attributes  of,  177,  178 
how  they  help  sell,  179 
selecting  the  right  one,  178 
set  selling  prices,  175 
simplicity  of,  177 
tests  of,  177 
uses  of,  173,  174,  175 

Cutting  time  of  clutches,  150,  151 

D 

Definitions,  expense,  183 

material,  182 

non-productive  labor,  183 

productive  labor,  183 

selling  expense,  183 

supplies,  183 

Delivery,  assuring  simultaneous,  72, 
73 

graphic  schedule  control  chart, 

74,  75 

Demand,  keeping  track  of,  72 
Departments,  contributory,  187,  203 

general  factory,  205,  206,  207 

how  determined,  201,  203 

laying  out,  202,  203 

power,  205 

productive,  187,  201 

what  is  charged  to,  204 

what  they  are,  186,  187 

why  they  are  needed,  200,  201 
Depreciation,  buildings,  198 

correct  rate  of,  194 

equipment,  198 

equipment   register,    194,    195, 
198,  199 

how  to  determine,  193,  194 

obsolescence,  194 
Design,  how  it  affects  time  study, 

124 
Drawings,  riling  the,  41 

keep  up  to  date,  39 
Drilling,  time  studies  in,  162,  163 

E 

Element  (see  Performance). 
Engineering    department,    coopera- 
tion with,  39 


Engineering  department,   duties  of, 

36,  37 

parts  list,  42,  43 
what  it  should  do,  41 
wherein  it  saves,  37,  38,  39 
Equipment,  distribution  of,  66 
Equipment  register,  how  used,  194, 

195 
Expenditures,   recording,    187,    188, 

189,  190,  192 
Expense,  advertising,  294 
analysis  of,  207 
assembling,  250,  251 
automatic  machines,  247 
boiler  department,  24 
charging  to  production.  204 
charts  of,  302 
controlling,  185 
definition  of,  183 
departmentalizing,     201,     202, 

203 

distribution  of,  245 
general  factory,  205,  206,  207, 

246 

hardening,  250 
kinds  of,  186,  187 
lathe,  250 
milling,  250 
normal   and  abnormal,    254  to 

266 

office,  245,  246 
polishing,  250 
power,  205,  244 
requisition,  226,  227,  228,  229, 

230 

selling,    252,    253,   288  to   289 
shipping,  252 
toolroom,  246  to  248 
what  causes,  186 
wrong    methods    of    spreading, 

200,  201 
Expense  analysis,  assembling,  250, 

251 

automatic  machines,  249 
boiler  department,  244 
complete,  256,  265,  266 
hardening,  250 
how    built  up,  207,  210,  220, 
235,    240,    241,    242,    243 


INDEX 


307 


Expense  analysis,  lathe,  250 
milling,  250 
office,  245,  246 
power  department,  244 
tool  room,  246,  247,  248 

Equipment  register,  how  it  works, 
194,  195,  198,  199 


Fatigue,  in  setting  rates,  140 
Final  rate  analysis  sheet,  the,  169 
Fixed  charges,  calculation  of,  197 

depreciation,  193,  194 

insurance,  193 

journal  entries  required,  197 

record  for,  195,  196 

revising,  199 

spreading,  195,  196,  197 

taxes,  193 

what  they  are,  187,  193 
Follow  up,  16,  17 


General   factory,    distributing,    246 

expense  of,  205,  206,  207,  246 
Graphic  charts,  dangers  in,  297,  298 

expense,  302 

forecasting,  298,  299,  300 

master,  303 

method  of  control;  296  to  304 

ratio,  301 

sales,  297 

when  to  use,  296,  297 


H 

Hardening     department, 
expense  of,  250 


releasing 


Idleness,  machine  time,  262 
Inventory,  adjustments  of,  262,  263 
finished  stock  card,  270 
of  supplies,  224,  225,  226 


Job  orders,  cost  card,  267 
Job  shop,  production  planning  in, 
4,  5,  102 

providing  for  breakdowns  in,  6 

when  to  plan  work,  102 
Journal  entries,  fixed  charges,  197 

for  expense  analysis,  238,  29 

office  expense,  246 

sales,  274 


Labor,  accounting  for,  214,  215,  216, 

217 

asset,  213 
definition  of,  183 
distribution  of,  219,  222 
non-productive,  183,  209 
overtime,  216,  217 
paying,  218 
piece  work,  217,  218 
productive,  183,  209,  215,  216 
recording,  212,  213 
transfer  of,  184,  185,  216 
Labor  costs,   classification  of,    183, 

209 

distributing,  209 
gathering  the  direct,  266,  267 
value  of  analyzing,  209 
Lathe  department,  releasing  expense 

of,  250 

time  studies  in,  156 
Layout  of  machines,  card  index,  64, 

65 

in  miniature,  67,  68 
in  straight  line,  60,  62 
Ledger,  adjusted  for  abnormal  ex- 
pense, 263,  264 
manufacturing  expense  account 

252,  253 
showing  entries  due  to  labor, 

221,  222 

to  supplies,  231,  232 
when  charge  register  is  posted, 

191 

with  sales  entries,  273,  274 
Lost  time,  handling  in  time  study, 
127 


308 


INDEX 


M 


Machine  load,  as  a  guide,  79 

to  sales  department,  81 
to  purchasing,  81 
function  of,  78 
how  to  develop,  78 
Machine  schedule,  description  of,  83 
how  it  is  used,  84 
purpose  of,  84 
Machine  shops,  classes  of,  3 
Machine  tools,  two  ways  of  group- 
ing, 60 

Machines,  balancing,  61,  69 
battery  arrangement,  60 
card  index  of,  64,  65 
final  layout,  67,  68 
hour  rates,  248,  249,  250 
how  to  estimate  production,  66 
how  to  lay  out,  62,  64 
idle  time,  262 
listing,  67 

work  of,  65,  66 
schedule  of,  83,  84,  85 
unit  arrangement,  60 
Material,  bill  of,  42,  43 
definition  of,  182 
direct,  182 
indirect,  183 

price,  to  use,  233,  234,  236 
receipt  for,  18 
transfer  of,  184,  185 
Milling    department,    releasing    ex- 
pense of,  250 

Minimum,  definition  of,  30 
how  to  determine,  30 


N 


Normal  costs,  definition  of,  254,  255 
normal  activity,  255,  256 
shown   on  expense   analysis, 

256,  257 
using,  258,  259,  260 


0 


Obsolescence,   depreciation  due  to, 
194 


Office,  245,  246 

Operating  statement,  by  lines,  284, 

285,  286 

comparative,  282,  283 
how  built  up,  281,  284,  285, 

286 
sample,  280 

Operations,  cost,  268 

Overall  time,  faults  of,  120 

Overhead  (see  Expense). 

Overtime,  accounting  for,  216,  217 


Parts  list,  description  of,  42 
in  cost  finding,  271 
in  engineering  dept.,  42,  43 
Payroll,  analysis  of,  219 

collection  note,  214,  215,  216, 

217,  218 

paying  the  men,  218,  219,  222 
Performance    record,    a    guide    to 

buying,  12,  13,  14 
in  time  study,  122,  123 
of  tools,  57,  58,  59 
Performances,  in  setting  piece  rates, 

149 

in  time  study,  122,  123 
record  of,  12,  13,  14 
rules  for,  124 
study  of,  123,  124 
when  to  stop,  125 
Piece  rates,  as  incentive  to  workmen, 

143 

derivation  of,  145,  148 
methods   of   extending,    144, 

145 

Piece  work,  accounting  for,  217,  218 
Policies,  set  by  cost  figures,  175,  254 

of  purchasing,  10 

Polishing  department,  releasing  ex- 
pense of,  250 
Power,  distributing  expense  of,  205 

expense,  244 

Prices,   of  material,   233,   234,   236 
price,  217,  218 
set  by  cost  figures,  175 
Production     board,     the      how     it 
controls,  114 


INDEX 


309 


Production,  booth  systeiri,  89,  90 
control  of,  89 

delayed  by  engineering  depart- 
ment, 40 
held  up  by  purchasing  methods, 

10 

how  to  estimate,  66 
keeping  up  with,  99 
rates  as  incentive  to,  162 
routing  sheet,  77 
schedule  control  graph,  75,  76, 

77,  78 

standard  of,  122 
straight  line,  60 
Production  planning,  booth  system, 

90,  91 

for  break  downs,  6 
graphic      schedule      control 

chart,  74 

how  it  may  double  output,  7 
how  much  production  can  be 

planned,  3 
importance     of     engineering 

department  in,  43,  44 
in  the  job  shop,  4,  5,  36,  102 
in  the  repair  shop,  4 
methods  of,  116,  117,  118 
production     stock     demand 

record,  72 
purpose  of,  7 
routine  of,  105,  106 
service  cards,  86,  87,  97 
what  it  will  do,  8 
what    to    do    with    non-pro- 
ductive labor,  99,  100 
who  can  use  it,  2 
Profit  and  loss,  by  lines,  284 
how  to  get,  274 
monthly,  275 
old  way,  275,  276 
Purchase  order,  14,  15 
follow  up,  16,  17 
how  many  copies,  14,  17 
receiver's  copy,  17 
Purchasing,  how   it  affects  produc- 
tion,   10 

machine  load  as  a  guide  to,  81 
policies  that  pay,  10 
short  sighted  policy,  9 


Purchasing  that  increases  costs,  9 
Purchasing  routine,  follow  up,  16,  17 
performance    record,    12,    14 
purchase  order,  14,  15 
quotation  record,  12,  13 


Q 


Quotations,  record  of,  12,  13 


II 


Rates,  machine  hr.,  248,  9-50 
allowance  for  fatigue  in,  140 

for  tooling  in,  140 
methods  of  setting,  161 
setting,  139,  140 

Receiving   material,    copy   of    pur- 
chase order,  17 
receipt,  18 
Requisition,    classifying,    228,    229, 

230,  333,  267 
expense,    226,    227,    228,    229, 

230 

filing  the,  227,  228 
using  the,  226,  227 
Route  sheet,  description  of,  63 

in  planning,  107,  108 
Routine,  danger  of  too  much,  12 
in  handling  tools,  54 
of  planning,  105,  106 
purchasing,  12  to  18 


S 


Salesmen,  cost  per  call,  292,  293 
Savings,  made  by  cost  figures,  174, 

175,  176 
Schedule  control  graph,  description 

of,  75,  76,  77 
how  made  out,  79 
how  work  is  issued,  91,  92 
in  analysis  of  output,  105 
Selling  expense,  by  lines,  293 
by  territory,  295 
by  salesmen,  292 
definition  of,  183 
fallacies  of,  288,  289 


310 


INDEX 


Selling  expense,  how  to  determine, 

288  to  296 
items  of,  289 
measure  of,  290 
problems  of,  289 
releasing,  250,  252 
Semi-automatic  turret  lathes,  time 

studies  on,  160,  161 
Service  card,  how  handled,  97,  98 
in  checking  work,  87 
non-productive,  212 
possession  of,  98 
productive,  212 
to  be  given  out,  92 
uses  of,  86,  87 

Set-up  time,  elements  of,  141,  142 
Shipping  department,  releasing  ex- 
pense of,  252,  253 
Speeds  and  feeds,   in  building  tool 

data  sheets,  169 
in  setting  standards,  133,  134 
in  time  studies,  121,  122 
Standard,    complications  in  setting, 

138,  139 
for  speed  of  operator,  135,  136, 

137 

how  to  set,  132 
of  production,  122 
rates,  259 
Standardization,  of  design,  104 

of    operations    on    automatics, 

164,  165 

of  performances,  149,  150 
of  product,  104 
of   rates    on    automatics,    170, 

171 
Statement     of     condition,     closing 

books,  275 
how  to  get,  277 
sample,  278,  279 
Statement  of  operations,  by  lines, 

285,  286 

comparative,  282,  283 
detailed,  284 

how  built  up,  281,  284,  286 
sample,  280 

Stock,  arrangement  of,  24 
index  board,  25,  26 
inventory  of,  34,  35 


Stock,  production  stock  and  demand 

record,  72 
Stock   records,    for    non-productive 

stores,  34 
production  stock  and  demand, 

32 

shortage  report,  30,  31 
who  should  handle  them,  28, 

29 

why  necessary,  19,  20 
Stock  room,    adjustment  to  needs, 

21 
economical  equipment  of,  26, 

27 

how  waste  is  eliminated,  23 
layout  of,  22 
location,  20,  21 
Stop  watch,  how  to  use  it,  126 
Straight  line  production,  60 
Supplies,  accounting  for,  223,  224 
definition  of,  183 
inventory  records,  224,  225,  226 
Surface  grinder,  time  study  of,  156, 

157 

System,    danger   of   too   much,    12 
purchasing,  12  to  18 


Task  and  bonus  plan,  on  automatic 

machines,  171,  172 
Time,  clock,  213,  214 
Time  studies,  analysis  of,  17,  26,  125 

complications  of,  138,  139 

continuous,  128 

form  for,  109 

how  design  affects,  124 

how  to  perform,  110,  111,  131 

in  drilling,  162 

kinds  of,  128 

lost  time  in,  127 

of  automatic  machines,   164, 
165 

on  chucking  grinders,  159 

on  the  lathe,  156 

on      semi-automatic      turret 
lathes,  160 

on  surface  grinder,  157,  158 

overall,  120 


INDEX 


311 


Time  studies,  securing   workman's 

operation  in,  130 
setting  standard  in,  132 
steps  in  making,  123 
tool  data  sheet,  167 
why  they  vary,  121,  122 
Tool  data  sheet  for  time  study,  167 
Tools,  double  check  system,  46,  47 
expense,  246,  247,  248 
keeping  track  of,  50,  51,  52 
list,  56,  57 
ownership  of,  48,  49 
performance  record,  57,  58, 
repair  of,  52,  53 
routine  in'  handling,  54 
rules  for  issue,  46 
rules  for  tool  issue,  46 
tool  card,  112 
storage,  53 


Trial   balance   sheet,  237,  239,  276 
Trucks,  styles  of,  70,  71 


Variables,  tabulation  of,   151,   152, 
153,  154 


W 


Wastes,  shown  by  cost  systems,  175, 

176,  177 

Workmen,    cooperation    with,    130 
how  piece  rates  are  incentive  to, 

143 

study  of  speed  of,  135,  136,  137 
task  and  bonus  plan  for,  171, 
172 


INITIAL  FINE  OP  25  CENTS 


YC  6709! 


VJNSV]  N'lA  LIBRARY 

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